How puzzling is the forward premium puzzle? A meta-analysis

Abstract

A key theoretical prediction in financial economics is that under risk neutrality and rational expectations a currency's forward rates should form unbiased predictors of future spot rates. Yet scores of empirical studies report negative slope coefficients from regressions of spot rates on forward rates, which is inconsistent with the forward rate unbiasedness hypothesis. We collect 3,643 estimates from 91 research articles and using recently developed techniques investigate the effect of publication and misspecification biases on the reported results. Correcting for these biases we estimate the slope coefficients of 0.31 and 0.98 for developed and emerging currencies respectively, which implies that empirical evidence is in line with the theoretical prediction for emerging economies and less puzzling than commonly thought for developed economies. Our results also suggest that the coefficients are systematically influenced by the choice of data, numeraire currencies, and estimation methods.

Borrower-Based Macroprudential Measures and Credit Growth: How Biased is the Existing Literature?

“…Such approach was used in recent meta-analyses in economics, see for instance Gechert et al (2020) and Bajzik et al (2020). We also employ combination of the Hannan-Quinn (HQ) g-prior that adjusts data quality and the random model prior (Fernandez et al, 2001;Ley and Steel, 2009;Feldkircher and Zeugner, 2012;Zigraiova et al, 2021). Next, we employ combination of the BRIC g-prior that minimizes the prior effect on the result and the random model prior that provides equal probability to every model size (Zeugner and Feldkircher, 2015;Gechert et al, 2020).…”

“…Model specification and estimation. Other meta-analytical papers reveal a key impact of the study design on the size and the direction of the estimated effect (Malovaná et al, 2021;Zigraiova et al, 2021). Therefore, we control for a number of characteristics related to model specification and estimation.…”

Corporate profit misalignment: evidence from German headquarter companies and their foreign affiliates

“…The final sample based on statutory tax rates includes on average 1236 German parent companies per year with 5047 foreign affiliates in 178 jurisdictions. For a rough comparison: the sample's total profits in 2016 amount to about EUR 73 bn 6 . The gross operating surplus of the total German economy as obtained from the national accounts amounted to EUR 1202 bn in the same year (European Commission 2020).…”

“…In the matching process we loose 1467683 firm-year observations which are either not included in JANIS or not included in MiDi. We obtain 122660 matched firm-year observations 6. We would have preferred to compare to the gross output from the sample to gross output of domestic MNE from the AMNE database.…”

Hedge Fund Performance: A Quantitative Survey

“…Selective publication may result from both conscious and subconscious decisions made by authors, editors, and referees who discard results that look implausible in the light of their a priori expectations (Ioannidis et al, 2017). Publication selection bias and its implications are extensively discussed in prior literature including Stanley (2001Stanley ( , 2005; ; Havranek (2015); Brodeur et al (2016); Bruns & Ioannidis (2016); ; Christensen & Miguel (2018); Brodeur et al (2020a); Blanco-Perez & Brodeur (2020); Zigraiova et al (2021). These studies document that publication selection bias is indeed widespread in a wide range of economic settings and it has a substantial impact on the mean value of reported estimates.…”