TY - JOUR
T1 - Unbiasedness and risk premiums in the Indian currency futures market
AU - Kumar, Satish
AU - Trück, Stefan
PY - 2014/3
Y1 - 2014/3
N2 - This paper explores the relationship between currency futures and realised spot rates for the Indian rupee US dollar exchange rate. Using futures contracts with maturities of one, two and three months, we examine the unbiasedness of futures quotes as a predictor of the future spot exchange rate as well as the nature of time-varying risk premiums in this emerging market. Empirical estimates, obtained using monthly data, suggest the biasedness of futures quotes as a predictor of the future spot rate for contracts with maturities of two and three months. We also find significant time-varying risk premiums in the considered futures market, while the premium is of greater magnitude and more significant with increasing maturity of the contracts. We then examine the relationship between realised risk premiums and explanatory variables such as spot currency returns, the futures basis and realised volatility, skewness and kurtosis of spot currency returns. Our results show that spot currency returns and the futures basis can be considered as significant determinants of realised risk premiums in the considered futures market.
AB - This paper explores the relationship between currency futures and realised spot rates for the Indian rupee US dollar exchange rate. Using futures contracts with maturities of one, two and three months, we examine the unbiasedness of futures quotes as a predictor of the future spot exchange rate as well as the nature of time-varying risk premiums in this emerging market. Empirical estimates, obtained using monthly data, suggest the biasedness of futures quotes as a predictor of the future spot rate for contracts with maturities of two and three months. We also find significant time-varying risk premiums in the considered futures market, while the premium is of greater magnitude and more significant with increasing maturity of the contracts. We then examine the relationship between realised risk premiums and explanatory variables such as spot currency returns, the futures basis and realised volatility, skewness and kurtosis of spot currency returns. Our results show that spot currency returns and the futures basis can be considered as significant determinants of realised risk premiums in the considered futures market.
UR - http://www.scopus.com/inward/record.url?scp=84890830327&partnerID=8YFLogxK
U2 - 10.1016/j.intfin.2013.10.010
DO - 10.1016/j.intfin.2013.10.010
M3 - Article
AN - SCOPUS:84890830327
VL - 29
SP - 13
EP - 32
JO - Journal of International Financial Markets, Institutions and Money
JF - Journal of International Financial Markets, Institutions and Money
SN - 1042-4431
ER -