Foreign exchange market efficiency, risk premia and interest rates : Australian evidence

Lester, Garry K. (1988). Foreign exchange market efficiency, risk premia and interest rates : Australian evidence Honours Thesis, School of Business, The University of Queensland.

       
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Author Lester, Garry K.
Thesis Title Foreign exchange market efficiency, risk premia and interest rates : Australian evidence
School, Centre or Institute School of Business
Institution The University of Queensland
Publication date 1988-01-01
Thesis type Honours Thesis
Total pages 100
Language eng
Subjects 14 Economics
Formatted abstract
In this thesis, the efficiency of the foreign exchange market is investigated in conjunction with the notion that speculators pay for receive a premium for the risk of taking a levered position in the forward market. Foreign exchange and interest rate data covering intervals of one month are analysed from the beginning of 1984 to the beginning of 1988 for five major currency relationships. Initial tests of the "riskless" covered interest parity theorem yields support for the notion that the foreign exchange market is efficient in the semi-strong form. Further investigation of foreign ex-change market behaviour given market efficiency, yields support for the hypothesis of the existence of risk premia in the forward market. Some support is also gained for the hypothesis that risk premia can be explained by domestic and overseas interest rates. This paper also investigates Giovannini and Jorion’s claims of a significant negative correlation between the domestic risk free interest rate and stock market risk premia and a significant positive correlation between stock market and foreign exchange market risk premia. These relationships however, could not be supported in this study.

 
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Created: Wed, 27 Oct 2010, 20:05:38 EST by Ning Jing on behalf of Social Sciences and Humanities Library Service