Profits, risk and uncertainty in foreign exchange markets

Canova, Fabio and Marrinan, Jane (1993) Profits, risk and uncertainty in foreign exchange markets Journal of Monetary Economics, 32, (2), pp. 259-286. (doi:10.1016/0304-3932(93)90005-Z).


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This paper examines the properties of nominal profits from speculation in dollar-dominated forward contracts using a representative agent cash-in-advance model, modified to allow for heteroscedasticity in the exogenous processes. The model is simulated by estimating exogenous processes from the data and the remaining free parameters with a simulated method-of-moments technique. Simulated expected profits are variable, heteroskedastic, and serially correlated, but the magnitude of these second moments fall short of those of the predictable component of observed profits on the U.S. dollar. As in the actual data simulated forward rates display biasedness in predicting simulated future spot rates.

Item Type: Article
Digital Object Identifier (DOI): doi:10.1016/0304-3932(93)90005-Z
ISSNs: 0304-3932 (print)
ePrint ID: 32939
Date :
Date Event
November 1993Published
Date Deposited: 11 Dec 2007
Last Modified: 16 Apr 2017 22:18
Further Information:Google Scholar

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