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Rationality and the Risk Premium on the Australian dollar

Citation

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

Abstract

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
Downloads:0

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