On Tests of the Existence of Time Variable Risk Premia in the Forward Foreign Exchange Market
- Author(s): Bossaerts, Peter
- et al.
It is shown here that the existence of a time variable risk premium cannot be tested without additional specification as to how such a premium should be related to observable variables. Recent empirical results are discussed in this context and it is argued that no conclusive evidence of a time variable risk premium has been found as yet because of the possibility of market inefficiency. A similar criticism applies to tests concerning futures markets and markets for (nominally) risk free assets.