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The forward premium puzzle and latent factors day by day


Die unten stehende Zusammenfassung ist einem Arbeitspapier entnommen, das dem Vortrag von Dr. Kerstin Bernoth zu Grunde liegt. Weitere Autoren des Arbeitspapiers sind Prof. Dr. Jürgen von Hagen (Universität Bonn) und Prof. Dr. Casper de Vries (Erasmus Universtität Rotterdam).



We use futures data instead of forwards to complete the maturity spectrum at the (multi-) day level study of the forward premium puzzle. For very short maturities the correlation is positive, but has a negative tendency that slowly becomes stronger as the number of days to maturity is increased to the monthly level. Futures data allows us to control for the influence of an unobserved factor that decomposes into a contract specific and time to maturity effect. Once we do this, we find that the coefficients on the forward premium hover around one.
The latent factor is related to conventional proxies of risk.