Foreign Exchange Rate Expectations: Survey and Synthesis

R. Jongen*, W.F.C. Verschoor, C.C.P. Wolff

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review


Abstract this paper reviews the empirical literature on foreign exchange rate expectations. Prominent issues are the forward premium puzzle, expectations formation in financial markets, heterogeneity of expectations, market microstructure, time-varying risk premiums and forecast performance. Although much has been learned in each field, this survey highlights the areas of research in which our understanding of the mechanism of exchange rate expectations is still incomplete. Our survey suggests that both irrational expectations and time-varying risk premiums account for the forward discount anomaly, that long-term expectations reverse towards their long-run equilibrium values and that heterogeneous behaviour of market participants has the potential of explaining some of the empirical regularities in the international finance literature.
Original languageEnglish
Pages (from-to)140-165
Number of pages26
JournalJournal of Economic Surveys
Issue number1
Publication statusPublished - 1 Jan 2008

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