Recent Estimates of Time-Variation in the Conditional Variance and in the Exchange Risk Premium
22 Pages Posted: 6 Apr 2007 Last revised: 22 Dec 2022
Date Written: August 1987
Abstract
The optimal-diversification model of investors' portfolio behavior can give a linear relationship between the exchange risk premium and the conditional exchange rate variance. This note surveys recent empirical work that allows for the conditional variance itself, and therefore the risk premium, to vary over time. In particular, it examines the implications of recent empirical estimates for earlier arguments, based on the assumption that the conditional variance was constant over time, that the exchange risk premium had to be small in magnitude and variability.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Covariation of Risk Premiums and Expected Future Spot Exchange Rates
-
The Time-Variation of Risk and Return in the Foreign Exchange and Stock Markets
-
Are Exchange Rates Excessively Variable?
By Jeffrey A. Frankel and Richard Meese
-
International Lending and Borrowing in a Stochastic Sequence Equilibrium
-
Exchange Rate Volatility and its Impact on the Transaction Costs of Covered Interest Rate Parity
By Ramaprasad Bhar, Toan M. Pham, ...
-
An International Economy with Country-Specific Money and Productivity Growth Processes
-
Foreign Exchange Market Efficiency, Speculators, Arbitrageurs and International Capital Flows
By Tin Nguyen