| Summary: | 博士 === 國立中山大學 === 財務管理學系 === 87 === There are two purposes in this paper. First, we examine the "efficient markets hypothesis" for the foreign exchange markets. The second purpose of this paper is to discuss the relationship between macroeconomic uncertainty and the risk premium in the foreign exchange market.
This paper derives the relationship between macroeconomic uncertainty and the risk premium based on the Lucas'' model. We find that the risk premium on a forward exchange contract is determined by both real and monetary variables as well as agents'' preferences, which act as weights in determining the importance of the fundamental sources of uncertainty represented by real and nominal shocks to the two economies.
The analysis conducted in this paper indicates that the simple efficiency hypothesis is suspect for foreign exchange markets. On the other hand, we find the lagged values of the own forecast error and other currencies'' lagged forecast errors have explanatory power in predicting the current forecast errors for all currencies.
In the empirical tests, we find the risk premium in the foreign exchange markets appears to be induced by the time-varying volatility in money supply and real industrial production- that is, the macroeconomic uncertainty in the two economies. On the other hand, the time-varying volatility in domestic credit, net foreign assets and real industrial production also affects the risk premium. The findings suggest that not only the first moments but also the second moments of the macroeconomic variables play an important role in the foreign exchange market.
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