The 16 references with contexts in paper John Barkoulas, Christopher F. Baum (1996) “Time-Varying Risk Premia in the Foreign Currency Futures Basis” / RePEc:boc:bocoec:281

1
Bailey, W. and K. C. Chan (1993), Macroeconomic Influences and the Variability of the
Total in-text references: 3
  1. In-text reference with the coordinate start=1094
    Prefix
    These correlations cannot be attributed to the expected spot price change component of the currency futures basis, thus establishing the presence of a timevarying risk premium component in the currency futures basis. I. Introduction The presence of a time-varying risk premium (TVRP) was confirmed in a variety of futures markets for commodities by
    Exact
    Bailey and Chan (1993),
    Suffix
    who found that a small number of macroeconomic risk factors from equities and bond markets are meaningfully related to futures basis movements. Hodrick and Srivastava (1987), Bessembinder and Chan (1992), and McCurdy and Morgan (1992) have established the presence of risk premia in currency futures pricing, while Hsieh (1993) found evidence to the contrary.

  2. In-text reference with the coordinate start=6938
    Prefix
    The decomposition in (2) is then applied to determine to what degree the observed relationship reflects the influence of expectational errors versus that of risk premia. The identification of common factors which might be expected to influence the workings of currency markets is based on recent findings by
    Exact
    Bailey and Chan (1993),
    Suffix
    who associated macroeconomic risks common to all asset markets to variations in the basis of twenty-two physical commodities. They found that after accounting for the effect of interest rates, common basis variations were correlated with observed proxies for systematic risk in the stock and bond markets.

  3. In-text reference with the coordinate start=22224
    Prefix
    The specific source of risk (stock versus bond market) matters, with the relationship being positive (negative) for the stock (bond) market risk factors. This differential response of currency futures basis to stock and bond market risk factors awaits explanation. These results contrast with those in
    Exact
    Bailey and Chan (1993),
    Suffix
    which suggest a uniformly positive association of futures basis for commodities to stock and bond market risk factors. However, the results resemble those in Bessembinder and Chan (1992), who found that currency futures returns were related positively to the dividend yield and negatively to the bond spread (except for the JY).

3
Bessembinder, H. and K. C. Chan (1992), Time-varying Risk Premia and Forecastable Returns in
Total in-text references: 3
  1. In-text reference with the coordinate start=1261
    Prefix
    Introduction The presence of a time-varying risk premium (TVRP) was confirmed in a variety of futures markets for commodities by Bailey and Chan (1993), who found that a small number of macroeconomic risk factors from equities and bond markets are meaningfully related to futures basis movements.
    Exact
    Hodrick and Srivastava (1987), Bessembinder and Chan (1992), and McCurdy and Morgan (1992)
    Suffix
    have established the presence of risk premia in currency futures pricing, while Hsieh (1993) found evidence to the contrary. Contributing to this literature, this paper follows the approach of Bailey and Chan and investigates the presence of risk premia in the currency futures basis in two steps.

  2. In-text reference with the coordinate start=22417
    Prefix
    These results contrast with those in Bailey and Chan (1993), which suggest a uniformly positive association of futures basis for commodities to stock and bond market risk factors. However, the results resemble those in
    Exact
    Bessembinder and Chan (1992),
    Suffix
    who found that currency futures returns were related positively to the dividend yield and negatively to the bond spread (except for the JY). The estimated models for the futures basis across currencies appear to be properly specified on the basis of residual diagnostic tests.

  3. In-text reference with the coordinate start=26402
    Prefix
    The factors in question relate to the currency futures basis through the expected time-varying risk premium component of the basis as opposed to the expected spot forecast error component. These results on the currency futures basis are thus consistent with the evidence provided by
    Exact
    Hodrick and Srivastava (1987), Bessembinder and Chan (1992), and McCurdy and Morgan (1992)
    Suffix
    regarding the presence of risk premia in currency futures pricing. V. Conclusions This paper establishes the existence of time-varying risk premia in the currency futures basis and demonstrates that these risk premia may be forecast using three common variables (dividend yield, default spread, and term spread) that have previously been shown to possess forecast power for returns in equity and bon

7
Bollerslev, T. and R.F. Engle (1993), Common Persistence in Conditional Variances, Econometrica, 61:1, 167-186.
Total in-text references: 2
  1. In-text reference with the coordinate start=19554
    Prefix
    The stock market variable is the dividend yield, DY, and the bond market variables are the bond default spread, DEF, and term spread, TERM. The argument for including risk proxies for only the U.S. economy is based on evidence by
    Exact
    Harvey and Huang (1991) and Bollerslev and Engle (1993)
    Suffix
    that U.S. macroeconomic news dominates the effects of news in European markets for U.S.European rates. The following ARMAX-GARCH(1, 1) model is estimated for the futures basis for each currency: 100⋅ i,t F− i,t S    Si,t=i0α+t−1i1αDY+i2αt−1DEF+i3αt−1TERM+i,tε εi,t=βiL()i,tε+γiL()i,tu, βiL()=ilβ l=1 p ∑lL,γiL()=ilγ l=1 q ∑lL(6) Vari,tutΩ()≡i,t2σ=iω+iiδi,t−12u+iiςi,t−12σ where L is

  2. In-text reference with the coordinate start=23380
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    Given the presence of IGARCH in the spot and futures currency rates established in previous studies, this result indicates that the spot and futures rates for these four currencies are copersistent, in the sense of
    Exact
    Bollerslev and Engle (1993),
    Suffix
    with copersistence vector (1, -1).8 For the futures basis for these currencies shocks to volatility have a finite duration and the unconditional variance is finite. Risk Premia versus Spot Forecast Error Does the importance of equity and bond market factors in explaining common variation in currency futures basis necessarily substantiate the presence of a time-varying risk premium?

10
Chen, N. (1991), Financial Investment Opportunities and the Macroeconomy, Journal of Finance, 529-554.
Total in-text references: 1
  1. In-text reference with the coordinate start=7621
    Prefix
    Their bond market variables are two term-structure factors, a default premium and a term premium. The rationale for including the above variables in the futures basis equation derives from the studies by Keim and Stambaugh (1986), Fama and French (1988a, b, 1993) and
    Exact
    Chen (1991)
    Suffix
    which have shown that the variables in question possess significant forecast power for equity and bond returns. More specifically, these variables are negatively related to business conditions and positively related to expected returns in the equity and bond markets.

17
Diebold, F. X. (1986), Testing for Serial Correlation in the Presence of ARCH, Proceeedings of the
Total in-text references: 1
  1. In-text reference with the coordinate start=13702
    Prefix
    Figure 2 plots the correlograms for up to forty-eighth order serial correlation in the currency futures basis and indicates that the autocorrelation function is very similar across currency futures basis. Formal evidence of serial dependence in the basis series is presented in Table II. The Box-Pierce test, adjusted for the presence of conditional heteroscedasticity
    Exact
    (Diebold, 1986),
    Suffix
    indicates substantial serial correlation in all basis series. Also, there is evidence of nonlinear dependence in the data as manifested by the significant test statistics for Engle's (1982) test for autoregressive conditional heteroscedasticity (ARCH).

20
Fama, E. F. and K. R. French (1988a), Business Conditions and Expected Returns on Stocks and
Total in-text references: 1
  1. In-text reference with the coordinate start=7558
    Prefix
    Their bond market variables are two term-structure factors, a default premium and a term premium. The rationale for including the above variables in the futures basis equation derives from the studies by
    Exact
    Keim and Stambaugh (1986), Fama and French (1988a,
    Suffix
    b, 1993) and Chen (1991) which have shown that the variables in question possess significant forecast power for equity and bond returns. More specifically, these variables are negatively related to business conditions and positively related to expected returns in the equity and bond markets.

22
Frankel, J. (1991), Quantifying International Capital Mobility in the 1990s, in D. Bernheim and J. Shoven, eds. National Saving and Economic Performance, Chicago, University of Chicago Press, 227-260.
Total in-text references: 1
  1. In-text reference with the coordinate start=4727
    Prefix
    When major foreign currencies are considered, the covered interest parity (CIP) relation is presumed to hold so as to preclude riskless arbitrage opportunities. The CIP relationship is reasonably well supported by the data
    Exact
    (Frenkel and Levich (1975, 1977), Taylor (1987, 1989), Frankel (1991)).
    Suffix
    Under the CIP condition, the foreign currency futures basis is necessarily determined by the relative interest rates in domestic and foreign markets, with observed discrepancies attributed to transactions costs and errors in measurement.1 The CIP condition may be stated as Ft−St=Rt−Rt*,(1) where tF is the log of the futures price for delivery at time t+1, as observed at time t, tS is the log of th

24
Frenkel, J. A. and R. M. Levich (1975), Covered Interest Arbitrage: Unsupported Profits?, Journal of Political Economy, 85, 1209-1226. _______ (1977), Transactions Costs and Interest Arbitrage: Tranquil versus Turbulent Periods, Journal of Political Economy, 83, 325-338.
Total in-text references: 1
  1. In-text reference with the coordinate start=4727
    Prefix
    When major foreign currencies are considered, the covered interest parity (CIP) relation is presumed to hold so as to preclude riskless arbitrage opportunities. The CIP relationship is reasonably well supported by the data
    Exact
    (Frenkel and Levich (1975, 1977), Taylor (1987, 1989), Frankel (1991)).
    Suffix
    Under the CIP condition, the foreign currency futures basis is necessarily determined by the relative interest rates in domestic and foreign markets, with observed discrepancies attributed to transactions costs and errors in measurement.1 The CIP condition may be stated as Ft−St=Rt−Rt*,(1) where tF is the log of the futures price for delivery at time t+1, as observed at time t, tS is the log of th

26
Harvey, C. R. and R. D. Huang (1991), Volatility in the Foreign Currency Futures Market, Review of Financial Studies, 4, 543-569.
Total in-text references: 1
  1. In-text reference with the coordinate start=19554
    Prefix
    The stock market variable is the dividend yield, DY, and the bond market variables are the bond default spread, DEF, and term spread, TERM. The argument for including risk proxies for only the U.S. economy is based on evidence by
    Exact
    Harvey and Huang (1991) and Bollerslev and Engle (1993)
    Suffix
    that U.S. macroeconomic news dominates the effects of news in European markets for U.S.European rates. The following ARMAX-GARCH(1, 1) model is estimated for the futures basis for each currency: 100⋅ i,t F− i,t S    Si,t=i0α+t−1i1αDY+i2αt−1DEF+i3αt−1TERM+i,tε εi,t=βiL()i,tε+γiL()i,tu, βiL()=ilβ l=1 p ∑lL,γiL()=ilγ l=1 q ∑lL(6) Vari,tutΩ()≡i,t2σ=iω+iiδi,t−12u+iiςi,t−12σ where L is

27
Hodrick, R. J. and S. Srivastava (1987), Foreign Currency Futures, International Journal of Forecasting, 22, 1-24.
Total in-text references: 2
  1. In-text reference with the coordinate start=1261
    Prefix
    Introduction The presence of a time-varying risk premium (TVRP) was confirmed in a variety of futures markets for commodities by Bailey and Chan (1993), who found that a small number of macroeconomic risk factors from equities and bond markets are meaningfully related to futures basis movements.
    Exact
    Hodrick and Srivastava (1987), Bessembinder and Chan (1992), and McCurdy and Morgan (1992)
    Suffix
    have established the presence of risk premia in currency futures pricing, while Hsieh (1993) found evidence to the contrary. Contributing to this literature, this paper follows the approach of Bailey and Chan and investigates the presence of risk premia in the currency futures basis in two steps.

  2. In-text reference with the coordinate start=26402
    Prefix
    The factors in question relate to the currency futures basis through the expected time-varying risk premium component of the basis as opposed to the expected spot forecast error component. These results on the currency futures basis are thus consistent with the evidence provided by
    Exact
    Hodrick and Srivastava (1987), Bessembinder and Chan (1992), and McCurdy and Morgan (1992)
    Suffix
    regarding the presence of risk premia in currency futures pricing. V. Conclusions This paper establishes the existence of time-varying risk premia in the currency futures basis and demonstrates that these risk premia may be forecast using three common variables (dividend yield, default spread, and term spread) that have previously been shown to possess forecast power for returns in equity and bon

28
Hsieh, D. A. (1993), Using Non-linear Methods to Search for Risk Premia in Currency Futures, Journal of International Economics, 35, 113-132.
Total in-text references: 1
  1. In-text reference with the coordinate start=1430
    Prefix
    in a variety of futures markets for commodities by Bailey and Chan (1993), who found that a small number of macroeconomic risk factors from equities and bond markets are meaningfully related to futures basis movements. Hodrick and Srivastava (1987), Bessembinder and Chan (1992), and McCurdy and Morgan (1992) have established the presence of risk premia in currency futures pricing, while
    Exact
    Hsieh (1993)
    Suffix
    found evidence to the contrary. Contributing to this literature, this paper follows the approach of Bailey and Chan and investigates the presence of risk premia in the currency futures basis in two steps.

29
Keim, D. and R. Stambaugh (1986), Predicting Returns in the Stock and Bond Markets, Journal of
Total in-text references: 2
  1. In-text reference with the coordinate start=7558
    Prefix
    Their bond market variables are two term-structure factors, a default premium and a term premium. The rationale for including the above variables in the futures basis equation derives from the studies by
    Exact
    Keim and Stambaugh (1986), Fama and French (1988a,
    Suffix
    b, 1993) and Chen (1991) which have shown that the variables in question possess significant forecast power for equity and bond returns. More specifically, these variables are negatively related to business conditions and positively related to expected returns in the equity and bond markets.

  2. In-text reference with the coordinate start=17053
    Prefix
    It must be noted, however, that the PP test has low power against the alternative of integration order slightly less than one especially in small samples as is the case here. Although it is difficult to make reliable inferences about the stationarity of the stock market variable, it is assumed stationary for purposes of analysis.
    Exact
    Keim and Stambaugh (1986)
    Suffix
    assumed stationarity for DY for the same reasons. Finally, the bond market variables DEF and TERM appear to be stationary since the PP test strongly rejects the unit-root null while the KPSS test fails to reject the null hypothesis of stationarity.

31
Kwiatkowski, D., P. C. B. Phillips, P. Schmidt, and Y. Shin (1992), Testing the Null Hypothesis of Stationarity against the Alternative of a Unit Root: How Sure are we that Economic Time Series have a Unit Root?, Journal of Econometrics, 54, 159-178.
Total in-text references: 1
  1. In-text reference with the coordinate start=14586
    Prefix
    Low-frequency properties of the currency basis series are rigorously investigated since the regression methods used later assume stationarity of the data. Two unit root tests are utilized: the Phillips-Perron test (PP) (Phillips (1987), Phillips and Perron (1986)), and the Kwiatkowski-Phillips-Schmidt-Shinn test (KPSS)
    Exact
    (Kwiatkowski et al. (1992)).
    Suffix
    In contrast to the PP test (as well as other standard unit root tests) in which the null hypothesis is nonstationarity (existence of a unit root), the KPSS test assumes stationarity under the null.

34
McCurdy, T. H. and J. G. Morgan (1992), Evidence of Risk Premiums in Foreign Currency
Total in-text references: 2
  1. In-text reference with the coordinate start=1261
    Prefix
    Introduction The presence of a time-varying risk premium (TVRP) was confirmed in a variety of futures markets for commodities by Bailey and Chan (1993), who found that a small number of macroeconomic risk factors from equities and bond markets are meaningfully related to futures basis movements.
    Exact
    Hodrick and Srivastava (1987), Bessembinder and Chan (1992), and McCurdy and Morgan (1992)
    Suffix
    have established the presence of risk premia in currency futures pricing, while Hsieh (1993) found evidence to the contrary. Contributing to this literature, this paper follows the approach of Bailey and Chan and investigates the presence of risk premia in the currency futures basis in two steps.

  2. In-text reference with the coordinate start=26402
    Prefix
    The factors in question relate to the currency futures basis through the expected time-varying risk premium component of the basis as opposed to the expected spot forecast error component. These results on the currency futures basis are thus consistent with the evidence provided by
    Exact
    Hodrick and Srivastava (1987), Bessembinder and Chan (1992), and McCurdy and Morgan (1992)
    Suffix
    regarding the presence of risk premia in currency futures pricing. V. Conclusions This paper establishes the existence of time-varying risk premia in the currency futures basis and demonstrates that these risk premia may be forecast using three common variables (dividend yield, default spread, and term spread) that have previously been shown to possess forecast power for returns in equity and bon

38
Phillips, P. C. B. (1987), Time Series Regression with a Unit Root, Econometrica, 55, 277-301. _______ and P. Perron (1988), Testing for Unit Roots in Time Series Regression, Biometrika, 75, 335-346.
Total in-text references: 1
  1. In-text reference with the coordinate start=14486
    Prefix
    Low-frequency properties of the currency basis series are rigorously investigated since the regression methods used later assume stationarity of the data. Two unit root tests are utilized: the Phillips-Perron test (PP)
    Exact
    (Phillips (1987),
    Suffix
    Phillips and Perron (1986)), and the Kwiatkowski-Phillips-Schmidt-Shinn test (KPSS) (Kwiatkowski et al. (1992)). In contrast to the PP test (as well as other standard unit root tests) in which the null hypothesis is nonstationarity (existence of a unit root), the KPSS test assumes stationarity under the null.

39
Taylor, M. P. (1987), Covered Interest Parity: A High-Frequency, High-Quality Data Study, Economica, 54, 429-438. _______ (1989), Covered Interest Arbitrage and Market Turbulence, Economic Journal, 99, 376391.
Total in-text references: 1
  1. In-text reference with the coordinate start=4727
    Prefix
    When major foreign currencies are considered, the covered interest parity (CIP) relation is presumed to hold so as to preclude riskless arbitrage opportunities. The CIP relationship is reasonably well supported by the data
    Exact
    (Frenkel and Levich (1975, 1977), Taylor (1987, 1989), Frankel (1991)).
    Suffix
    Under the CIP condition, the foreign currency futures basis is necessarily determined by the relative interest rates in domestic and foreign markets, with observed discrepancies attributed to transactions costs and errors in measurement.1 The CIP condition may be stated as Ft−St=Rt−Rt*,(1) where tF is the log of the futures price for delivery at time t+1, as observed at time t, tS is the log of th