The sensitivity of exchange rate premia to consumption, dividends and earnings.
Date
2002
Authors
Watuwa, Richard.
Journal Title
Journal ISSN
Volume Title
Publisher
Dalhousie University
Abstract
Description
We investigate the possibility that dividends and earnings per share contain enough information to explain the time-varying risk premium in foreign exchange markets.
In the context of a model of foreign exchange determination, we show using GMM estimation, that dividend based stochastic discount factors are a better measure of households' intertemporal marginal rate of substitution than consumption based discount factors. An earnings based discount factor performs better than both dividend and consumption based discount factors.
We also use the calibration methodology to investigate the quantitative implications of the model based on US-Canadian data. While the earnings model increases the volatility of the risk premium relative to the consumption model, it does not account for the volatility and persistence in the data.
Thesis (Ph.D.)--Dalhousie University (Canada), 2002.
In the context of a model of foreign exchange determination, we show using GMM estimation, that dividend based stochastic discount factors are a better measure of households' intertemporal marginal rate of substitution than consumption based discount factors. An earnings based discount factor performs better than both dividend and consumption based discount factors.
We also use the calibration methodology to investigate the quantitative implications of the model based on US-Canadian data. While the earnings model increases the volatility of the risk premium relative to the consumption model, it does not account for the volatility and persistence in the data.
Thesis (Ph.D.)--Dalhousie University (Canada), 2002.
Keywords
Economics, Finance.