Abstract
The present study investigates possible existence of time varying risk premia in Brazilian real, Chinese yuan; Cypriot pound, Danish krone, Eurozone euro, French franc, Indian rupee, Japanese yen, Pakistani rupee, and British pound forward foreign exchange rates against US dollar. Exchange rates in these series are modeled using non-Gaussian state space models that encompass non-normality and GARCH-like affects.The results show statistically significant evidence of time varying risk premium in all the series. Following Wolff (1987), the results from Gaussian versions of the state space models are not much different. Moreover, statistically significant evidence of volatility clustering is realized in all the series. Additional tests reveal that exclusion of conditional heteroskedasticity from the forecasting models leads to false statistical inferences in favor of no time varying risk premium in most of the series.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
