The forward premium puzzle in a model of imperfect information

This paper studies the forward premium puzzle in a model with imperfect information. The model predicts fixed effects and conditional heteroskedasticity in the forward premium regression and provides a rationale for the evidence in Mayfield and Murphy [Mayfield, E.S., Murphy, R.G. 1992. Interest rate parity and the exchange risk premium, Economics Letters 40, 319-324].