The Japanese Yen Futures Returns, Spot Returns, and the Risk Premium

Posted: 27 Aug 2007 Last revised: 8 Dec 2009

Abstract

Japanese yen currency dynamics are investigated in spot and futures markets. Maturity is proposed as a proxy for the time-varying risk premium. As the maturity of a yen futures contract nears, there is less uncertainty implying a small absolute risk premium. A longer maturity is associated with uncertainty about the economy, the underlying currency, and the contract; and implies a high risk premium. Models that include maturity in addition to the futures - spot basis as explanatory variables exhibit better empirical performance in explaining futures returns and spot returns. The results are robust to different sample periods, forecast horizons, and estimation techniques.

Keywords: exchange rates, futures markets, risk premium, Uncovered Interest Parity

JEL Classification: F31, G15

Suggested Citation

Inci, Ahmet Can, The Japanese Yen Futures Returns, Spot Returns, and the Risk Premium. Global Finance Journal, Vol. 18, No. 3, pp. 385-399, 2008, Available at SSRN: https://ssrn.com/abstract=1009518

Ahmet Can Inci (Contact Author)

Bryant University ( email )

1150 Douglas Pike
Smithfield, RI 02917
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
661
PlumX Metrics