The purpose of this study is to investigate empirically a risk premium in the forward foreign exchange rate with the framework of capital asset pricing model.
The results of empirical research using six currency data in U.S. forward foreign exchange market show that there exist risk premiums in at least three currencies and these premiums conform to CAPM.
This study has two major contributions: One of them is the introduction of new model which associates Solnik's variable with the international stock market.
The other is the use of Box-Jenkins forecast data as a proxy of future expectation. But this study still has many limitations and weaknesses from the view of theory building and research methodology.
Thus some directions of further research are suggested.
