The extensive empirical finding that the slope coefficient in the uncovered interest parity condition is often less than unity and negative is regarded as the forward premium puzzle. This paper serves as an addition to the current field of literature by analyzing the interest rate differential and its impact on the change in spot exchange rate. Simple OLS models for the uncovered interest parity are run through various time periods across different frequencies: daily, monthly and quarterly. The results are a mix of both positive and negative slope estimates, however they all support the evidence for the forward premium puzzle.
Haralalka, Divvya, "Forward Premium Puzzle: A Multi-Facted Time View" (2016). Senior Independent Study Theses. Paper 6999.
Bachelor of Arts
Senior Independent Study Thesis
© Copyright 2016 Divvya Haralalka