Profits, Risk, and Uncertainty in Foreign-Exchange Markets
Journal of Monetary Economics, 1993, 32, 2, 259-286
CANOVA, Fabio, MARRINAN, Jane, Profits, Risk, and Uncertainty in Foreign-Exchange Markets, Journal of Monetary Economics, 1993, 32, 2, 259-286 - https://hdl.handle.net/1814/16758
Retrieved from Cadmus, EUI Research Repository
This paper examines the properties of nominal profits from speculation in dollar-dominated forward contracts using a representative agent cash-in-advance model, modified to allow for heteroscedasticity in the exogenous processes. The model is simulated by estimating exogenous processes from the data and the remaining free parameters with a simulated method-of-moments technique. Simulated expected profits are variable, heteroskedastic, and serially correlated, but the magnitude of these second moments fall short of those of the predictable component of observed profits on the U.S. dollar. As in the actual data simulated forward rates display biasedness in predicting simulated future spot rates.
Cadmus permanent link: https://hdl.handle.net/1814/16758
Full-text via DOI: 10.1016/0304-3932(93)90005-Z
Earlier different version: http://hdl.handle.net/1814/424
Version: The article is a published version of EUI ECO WP; 1992/73
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