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Rationality and the Risk Premium on the Australian dollar


Felmingham, BS and Mansfield, P, Rationality and the Risk Premium on the Australian dollar, International Economic Journal, 11, (3) pp. 47-59. ISSN 1016-8737 (1997) [Refereed Article]

DOI: doi:10.1080/10168739700000018


A Model of the forward rate error of the USD/AUD spot exchange rate is fitted to daily data for the period 15th December 1983 to 31st December 1991. This provides a data set of 2034 daily trading observations. Explanations of the forecast error include a risk premium represented by a constant plus the conditional variance generated from a GARCH (1,1)-M analysis of the error process and information variables in the form of lagged forward rate errors. The following conclusions are drawn form estimates for the full sample: the USD/AUD spot rate is subject to a constant premium: there is little evidence to support a time varying component and the market is influenced by lagged forward errors. Sub period estimation confirms these results, although a time varying premium is evident prior to the February 1985 depreciation. The economic implications of these findings are discussed. [F31]. © 1997, Taylor & Francis Group, LLC.

Item Details

Item Type:Refereed Article
Research Division:Commerce, Management, Tourism and Services
Research Group:Banking, finance and investment
Research Field:Finance
Objective Division:Economic Framework
Objective Group:Macroeconomics
Objective Field:Exchange rates
UTAS Author:Felmingham, BS (Dr Bruce Felmingham)
UTAS Author:Mansfield, P (Dr Peter Mansfield)
ID Code:11381
Year Published:1997
Deposited By:Economics and Finance
Deposited On:1997-08-01
Last Modified:2011-08-12

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