EVIDENCE OF RISK PREMIUMS IN FOREIGN-CURRENCY FUTURES MARKETS

Weekly data for foreign currency futures prices are examined for evidence of risk premiums. Covariance risks are measured with respect to the excess returns from benchmark portfolios for consumption and wealth. When the parameters representing the prices of the covariance risks are held constant, no risk premiums are detected. However, when these prices are allowed to vary with the conditional expected returns and variances of the benchmark portfolios, possibly reflecting changing investment opportunities, strong evidence of risk premiums is obtained.