More Evidence on the Dollar Risk Premium in the Foreign Exchange Market

W.F.M. Bams, K. Walkowiak, C.C.P. Wolff*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

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In this article, we develop and estimate an econometric panel data model to capture the common dynamics in dollar risk premia in various forward foreign exchange rates. The common component in the dollar risk premium is highly significant and embodies a common pattern of positive serial correlation (persistence) for the pound, the yen and the mark. Interestingly, our results indicate that the dynamics of the forward prediction error can be attributed almost exclusively to this dollar-related common component. Our evidence also suggests that the three different foreign currencies’ dollar risk premia ‘respond’ to the common factor to different degrees.
Original languageEnglish
Pages (from-to)271-282
Number of pages11
JournalJournal of International Money and Finance
Issue number23
Publication statusPublished - 1 Jan 2004


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