A non-parametric analysis of covered interest parity in long-date capital markets

The financially innovative currency swap has elevated the international mobility of long-term assets. Of interest is whether the covered interest parity condition now holds in these markets, with the currency swap as the forward-exchange risk hedge. The empirical conclusions presented in the paper s...

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Bibliographic Details
Published inJournal of international money and finance Vol. 13; no. 4; pp. 459 - 475
Main Authors Fletcher, Donna J., Taylor, Larry W.
Format Journal Article
LanguageEnglish
Published Guildford Elsevier Ltd 01.08.1994
Elsevier
Butterworth Scientific Ltd
Elsevier Science Ltd
SeriesJournal of International Money and Finance
Subjects
Arbitrage
Bond markets
Bonds
Capital
Currency
Currency swaps
Economic models
Economics
Eurobonds
International finance
Parity
Statistical analysis
Studies
Europe
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Summary:The financially innovative currency swap has elevated the international mobility of long-term assets. Of interest is whether the covered interest parity condition now holds in these markets, with the currency swap as the forward-exchange risk hedge. The empirical conclusions presented in the paper suggest that deviations from covered interest parity (in excess of transactions costs) are not rare. Yet, while profit opportunities are not always short-lived, an analysis of the deviations in excess of transactions costs reveals that they diminish over time, and eventually disappear. (JEL F32).
ISSN:0261-5606
1873-0639
DOI:10.1016/0261-5606(94)90050-7