Open Access. Powered by Scholars. Published by Universities.®
Finance and Financial Management Commons™
Open Access. Powered by Scholars. Published by Universities.®
Articles 1 - 4 of 4
Full-Text Articles in Finance and Financial Management
Forward Premiums And Market Efficiency: Panel Unit-Root Evidence From The Term Structure Of Forward Premiums, Atreya Chakraborty
Forward Premiums And Market Efficiency: Panel Unit-Root Evidence From The Term Structure Of Forward Premiums, Atreya Chakraborty
Atreya Chakraborty
A plausible explanation for cointegration among spot currency rates determined in efficient markets is the existence of a stationary, time-varying currency risk premium. Such an interpretation is contingent upon stationarity of the forward premium. However, empirical evidence on the stochastic properties of the forward premium series has been inconclusive. We apply a panel unit-root test – the Johansen likelihood ratio (JLR) test – to forward exchange premiums by utilizing cross-sectional information from their term structure. In contrast to earlier studies, the JLR test provides decisive and temporally stable evidence in support of stationary forward premiums, and therefore foreign exchange market …
Nearest-Neighbor Forecasts Of U.S. Interest Rates, Atreya Chakraborty
Nearest-Neighbor Forecasts Of U.S. Interest Rates, Atreya Chakraborty
Atreya Chakraborty
We employ a nonlinear, nonparametric method to model the stochastic behavior of changes in several short and long term U.S. interest rates. We apply a nonlinear autoregression to the series using the locally weighted regression (LWR) estimation method, a nearest-neighbor method, and evaluate the forecasting performance with a measure of root mean square error (RMSE). We compare the forecasting performance of the nonparametric fit to the performance of two benchmark linear models: an autoregressive model and a random-walkwith-drift model. The nonparametric model exhibits greater out-of-sample forecast accuracy that that of the linear predictors for most U.S. interest rate series. The …
Dynamic Futures Hedging In Currency Markets, Atreya Chakraborty
Dynamic Futures Hedging In Currency Markets, Atreya Chakraborty
Atreya Chakraborty
The hedging effectiveness of dynamic strategies is compared with static (traditional) ones using futures contracts for the leading five currencies. The traditional hedging model assumes time invariance in the joint distribution of spot and futures price changes thus leading to a constant optimal hedge ratio (OHR). However, if this timeinvariance assumption is violated, time-varying OHRs are appropriate for hedging purposes. A bivariate GARCH model is employed to estimate the joint distribution of spot and futures currency returns and the sequence of dynamic (time-varying) OHRs is constructed based upon the estimated parameters of the conditional covariance matrix. The empirical evidence strongly …
Ricardian Equivalence: Further Evidence, Atreya Chakraborty
Ricardian Equivalence: Further Evidence, Atreya Chakraborty
Atreya Chakraborty
The Ricardian Hypothesis states that for a given level of government expenditure, aggregate demand is neutral to changes in the debt-to-tax ratio. Many economists argue that the private and government sectors have different planning horizons which will lead to deviations from Ricardian equivalence. In this paper, by using a model that nests both Ricardian equivalence and an alternative hypothesis, we empirically investigate whether the private sector has a shorter planning horizon than the government sector. The evidence presented in this study suggests that there is no difference between the planning horizons of the private and government sectors.