Investor overconfidence and the forward premium puzzle

Investor overconfidence and the forward premi ...
Craig Burnside, Craig Burnside
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Last edited by MARC Bot
September 25, 2020 | History

Investor overconfidence and the forward premium puzzle

"We offer an explanation for the forward premium puzzle in foreign exchange markets based upon investor overconfidence. In the model, overconfident individuals overreact to their information about future inflation, which causes greater overshooting in the forward rate than in the spot rate. Thus, when agents observe a signal of higher future inflation, the consequent rise in the forward premium predicts a subsequent downward correction of the spot rate. The model can explain the magnitude of the forward premium bias and several other stylized facts related to the joint behavior of forward and spot exchange rates. Our approach is also consistent with the availability of profitable carry trade strategies"--National Bureau of Economic Research web site.

Publish Date
Language
English

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Edition Availability
Cover of: Investor overconfidence and the forward premium puzzle
Investor overconfidence and the forward premium puzzle
2010, National Bureau of Economic Research
Electronic resource in English

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Book Details


Edition Notes

Title from PDF file as viewed on 4/8/2010.

Includes bibliographical references.

Also available in print.

System requirements: Adobe Acrobat Reader.

Mode of access: World Wide Web.

Published in
Cambridge, MA
Series
NBER working paper series -- working paper 15866, Working paper series (National Bureau of Economic Research : Online) -- working paper no. 15866.

Classifications

Library of Congress
HB1

The Physical Object

Format
Electronic resource

Edition Identifiers

Open Library
OL24584026M
LCCN
2010655812

Work Identifiers

Work ID
OL15637097W

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September 25, 2020 Edited by MARC Bot import existing book
January 7, 2011 Created by ImportBot initial import