Please use this identifier to cite or link to this item: http://hdl.handle.net/1893/11783
Appears in Collections:Accounting and Finance Journal Articles
Peer Review Status: Refereed
Title: Forward interest rate premium and asymmetric adjustment: Evidence from 16 countries
Authors: McMillan, David
Contact Email: david.mcmillan@stir.ac.uk
Keywords: Asymmetric adjustment
Forward premium
Interest rates
Issue Date: Apr-2009
Publisher: Elsevier
Citation: McMillan D (2009) Forward interest rate premium and asymmetric adjustment: Evidence from 16 countries, Journal of International Financial Markets, Institutions and Money, 19 (2), pp. 258-273.
Abstract: This paper examines the ability of the forward premium to provide an unbiased estimate of the future spot rate allowing for potential asymmetries. Extant evidence suggests that forward rates provide a biased predictor of future spot rates. Examining the forward premium for 16 countries, only for 2 countries does the linear expectations hypothesis holds. For the remaining countries, results generally support the view that the larger the forward premium the better a predictor for future spot rates it is, however, this result is not unique across all countries. Furthermore, although the asymmetric model improves data fit over the linear model, only in four cases does the model support an unbiased predictor interpretation. Further research is therefore required to understand the nature of this relationship, not least given the importance of correctly priced forward and long rates in terms of expected returns to future investments and the conduct of monetary policy.
Type: Journal Article
URI: http://hdl.handle.net/1893/11783
DOI Link: http://dx.doi.org/10.1016/j.intfin.2007.12.002
Rights: The publisher does not allow this work to be made publicly available in this Repository. Please use the Request a Copy feature at the foot of the Repository record to request a copy directly from the author. You can only request a copy if you wish to use this work for your own research or private study.
Affiliation: Accounting and Finance

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