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The existence and severity of the forward premium puzzle during tranquil and turbulent periods: Developed versus developing country currencies

Shehadeh, Ali A. ; Li, Youwei ; Vigne, Samuel A. ; Almaharmeh, Mohammad I. ; Wang, Yizhi

International review of financial analysis, 2021-11, Vol.78, p.101871, Article 101871 [Periódico revisado por pares]

Elsevier Inc

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  • Título:
    The existence and severity of the forward premium puzzle during tranquil and turbulent periods: Developed versus developing country currencies
  • Autor: Shehadeh, Ali A. ; Li, Youwei ; Vigne, Samuel A. ; Almaharmeh, Mohammad I. ; Wang, Yizhi
  • Assuntos: Advanced and emerging market currencies ; Covered and uncovered interest rate parities ; Currency carry trade returns ; Foreign exchange ; Forward premium bias ; Global financial crises
  • É parte de: International review of financial analysis, 2021-11, Vol.78, p.101871, Article 101871
  • Descrição: In this paper we investigate the forward premium bias (FPB) puzzle for a number of developed and developing country currencies. Our main objective is to examine the possible variations in the existence and severity of the bias for different currency sets over two sample periods which can be categorized as calm and turbulent periods. We find significant evidence that the FBP tend to vary over time and across currency sets. We also find that the global financial crisis has been a turning point in the variation of the existence and severity of the bias for our currency sets. The results show that different currency sets have been affected by the crisis in different patterns. While the bias disappeared prominently for developed country currencies with the peak of the crisis, it survived and became more pronounced for some high-yielding developing country currencies. The results imply that the FPB is time-varying and its existence and severity vary across and within currency sets depending on the time period under consideration. Overall, the findings of the paper suggest that both time period-specific characteristics as well as currency-specific factors play a vital role for the existence and severity of the FPB. •The existence and severity of the FPB have been investigated for several developed and developing currencies against USD.•Results show that the FPB is time-varying, and its existence and severity vary across and within different currency sets.•The FPB tends to vary depending on both the time period-specific characteristics and the currency-specific factors.•The FBP in different currency sets has been affected by the global financial crisis in different patterns.•The paper provides more insights into the FPB regarding developing country currencies especially the high-yielding ones.
  • Editor: Elsevier Inc
  • Idioma: Inglês
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  • Realização: ABCD-USP USP   Logos de Redes Sociais: Freepik

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