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Journal articles on the topic 'Covered interest rate parity'

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Published: 4 June 2021
Last updated: 6 February 2022

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1

DU, WENXIN, ALEXANDER TEPPER, and ADRIEN VERDELHAN. "Deviations from Covered Interest Rate Parity." Journal of Finance 73, no. 3 (May 24, 2018): 915–57. http://dx.doi.org/10.1111/jofi.12620.

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2

Skinner, Frank S., and Andrew Mason. "Covered interest rate parity in emerging markets." International Review of Financial Analysis 20, no. 5 (October 2011): 355–63. http://dx.doi.org/10.1016/j.irfa.2011.06.008.

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3

Balke, Nathan S., and Mark E. Wohar. "Nonlinear dynamics and covered interest rate parity." Empirical Economics 23, no. 4 (December 1998): 535–59. http://dx.doi.org/10.1007/bf01205993.

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4

Balke, Nathan S., and Mark E. Wohar. "Nonlinear dynamics and covered interest rate parity." Empirical Economics 23, no. 4 (December 14, 1998): 535–59. http://dx.doi.org/10.1007/s001810050035.

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5

Liao, Gordon Y. "Credit migration and covered interest rate parity." Journal of Financial Economics 138, no. 2 (November 2020): 504–25. http://dx.doi.org/10.1016/j.jfineco.2020.06.002.

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6

Lee, Seungho. "Deviation from Covered Interest Rate Parity in Korea." East Asian Economic Review 7, no. 1 (June 30, 2003): 125–41. http://dx.doi.org/10.11644/kiep.jeai.2003.7.1.104.

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7

Su, Chi-Wei, Kai-Hua Wang, Ran Tao, and Oana-Ramona Lobonţ. "Does the covered interest rate parity fit for China?" Economic Research-Ekonomska Istraživanja 32, no. 1 (January 1, 2019): 2009–27. http://dx.doi.org/10.1080/1331677x.2019.1642780.

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8

Kim, Woong Ryeol, and Moon-Kyum Kim. "Analysis of RMB Covered Interest Rate Parity and its Implication." Academic Society of Global Business Administration 16, no. 3 (June 30, 2019): 129–59. http://dx.doi.org/10.38115/asgba.2019.16.3.129.

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9

Chertman, Fernando. "Deviations From Covered Interest Rate Parity: Evaluating Drivers for Changes." Journal of Quantitative Methods 4, no. 2 (August 31, 2020): 1. http://dx.doi.org/10.29145/2020/jqm/040201.

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This paper evaluates the deviation from covered interest rate parity (CIP) after the great financial crisis. As a new phenomenon, this deviation has been approached both theoretically (violating the no arbitrage condition) and empirically. Through an extensive literature review, this study maps the possible drivers of the deviation and their proxies. We apply the analysis on a set of countries that are not yet explored in the related literature so far, even though represent a significant part of the foreign exchange market. Regarding the results, a significant weight in the financial drivers is obtained. The result claims for a deeper analysis and opens the possibility to evaluate this phenomenon under a new perspective.
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10

Hartley, Jonathan S. "Covered Interest Rate Parity Deviations in External Emerging Market Sovereign Debt." Journal of Fixed Income 29, no. 4 (January 3, 2020): 92–99. http://dx.doi.org/10.3905/jfi.2020.1.080.

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11

김정성 and Kyuho Kang. "Analysis on Recent Changes in the Covered Interest Rate Parity Condition." KDI Journal of Economic Policy 36, no. 2 (May 2014): 103–36. http://dx.doi.org/10.23895/kdijep.2014.36.2.103.

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12

Rao, Vadhindran K. "Covered Interest Parity Deviations Between India And The US." International Business & Economics Research Journal (IBER) 11, no. 1 (December 21, 2011): 83. http://dx.doi.org/10.19030/iber.v11i1.6674.

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Prior studies have tested Covered Interest Parity (CIP) between India and the United States and found substantial deviations. The main objective of the current study is to econometrically model and explain deviations from CIP. Further, the study contributes to the literature by proposing an approach to testing CIP after allowing for country risk. A preliminary analysis suggests that there are two types of shocks that impact the CIP deviation, also referred to as the Covered Interest Differential (CID): permanent shocks and temporary shocks. The permanent shocks may be interpreted as reflecting a change in the country risk premium and the temporary shocks as reflecting transient effects and disequilibrium. The paper uses a bivariate Vector Autoregression (VAR) approach to model the joint dynamics of the CID and the forward premium, and applies the methodology of Blanchard and Quah (1989) to separate the impact of the two types of shocks. Impulse-Response analysis shows that a one standard deviation permanent shock has an immediate, substantial impact on the CID. However, forecast error variance decomposition reveals that less than 30% of the variability in the CID is caused by such permanent shocks. Further, permanent shocks account for less than 5% of the forecast error variance of the forward premium, which suggests that covered interest arbitrage activity has limited influence on the forward premium. Temporary shocks appear to be related to transient volatility in the forward premium, and such shocks initially affect both the forward premium and the CID to approximately the same extent. The manner in which the CID responds to a temporary shock suggests considerable impediments to arbitrage. However, the fact that the CID recovers at a slightly faster rate than the forward premium, especially in the initial periods, suggests that capital restrictions are not completely binding.
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13

Bhar, Ramprasad, Suk-Joong Kim, and Toan M. Pham. "Exchange rate volatility and its impact on the transaction costs of covered interest rate parity." Japan and the World Economy 16, no. 4 (December 2004): 503–25. http://dx.doi.org/10.1016/j.japwor.2003.09.003.

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14

Amador, Manuel, Javier Bianchi, Luigi Bocola, and Fabrizio Perri. "Exchange Rate Policies at the Zero Lower Bound." Review of Economic Studies 87, no. 4 (November 27, 2019): 1605–45. http://dx.doi.org/10.1093/restud/rdz059.

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Abstract We study the problem of a monetary authority pursuing an exchange rate policy that is inconsistent with interest rate parity because of a binding zero lower bound constraint. The resulting violation in interest rate parity generates an inflow of capital that the monetary authority needs to absorb by accumulating foreign reserves. We show that these interventions by the monetary authority are costly, and we derive a simple measure of these costs: they are proportional to deviations from the covered interest parity (CIP) condition and the amount of accumulated foreign reserves. Our framework can account for the recent experiences of “safe-haven” currencies and the sign of their observed deviations from CIP.
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15

Correia, C. De J., and R. F. Knight. "Covered interest arbitrage opportunities in the South African foreign exchange market." South African Journal of Business Management 18, no. 4 (December 31, 1987): 209–14. http://dx.doi.org/10.4102/sajbm.v18i4.1019.

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The Interest Parity Theory states that in an efficient market, any interest differential between local and foreign sources of finance will be offset by the forward premium/discount. Therefore, opportunities to engage in profitable Covered Interest Arbitrage transactions will be eliminated quickly. The fall in the Rand/Dollar exchange rate resulted in many South African companies reporting substantial foreign exchange losses on offshore loans. Companies were attracted to foreign sources of finance because of lower foreign interest rates. The authors conclude, on the basis of empirical tests, that the forward Rand/Dollar exchange rate followed its interest parity value very closely over the period August 1983 - August 1985. Opportunities to engage in risk-free arbitrage activities were offset by related transaction costs. The South African foreign exchange market is efficient to the extent that risk-free profit opportunities did not exist for the period under review and therefore there was no benefit, after adjusting for risk, for South African management to borrow from offshore sources of finance.
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16

Kang. "Currency Market Efficiency Revisited: Evidence from Korea." International Journal of Financial Studies 7, no. 3 (September 16, 2019): 52. http://dx.doi.org/10.3390/ijfs7030052.

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17

Chen, W. D. "Liquidity, covered interest rate parity, and zero lower bound in Japan’s foreign exchange markets." International Review of Economics & Finance 69 (September 2020): 334–49. http://dx.doi.org/10.1016/j.iref.2020.05.007.

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18

Gomez-Gonzalez, Jose E., Santiago Gomez-Malagon, Luis F. Melo-Velandia, and Daniel Ordoñez-Callamand. "A rank approach for studying cross-currency bases and the covered interest rate parity." Empirical Economics 59, no. 1 (February 19, 2019): 357–69. http://dx.doi.org/10.1007/s00181-019-01633-4.

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19

Lehrbass, Frank, and Thamara Sandra Schuster. "Deviations from Covered Interest Rate Parity: The Case of British Pound Sterling versus Euro." Journal of Financial Data Science 3, no. 1 (December 17, 2020): 140–51. http://dx.doi.org/10.3905/jfds.2020.1.050.

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20

CODY, BRIAN J. "EXCHANGE CONTROLS, POLITICAL RISK AND THE EUROCURRENCY MARKET: NEW EVIDENCEFROM TESTS OF COVERED INTEREST RATE PARITY." International Economic Journal 4, no. 2 (June 1, 1990): 75–86. http://dx.doi.org/10.1080/10168739000080012.

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21

Hui, Cho-Hoi, Chi-Fai Lo, and Chin-To Fung. "Covered interest parity in cross-currency swap bases and demand for US treasuries." International Journal of Financial Engineering 07, no. 02 (June 2020): 2050018. http://dx.doi.org/10.1142/s2424786320500188.

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This paper studies the dynamic relationship between demand for the US Treasury yields and cross-currency swap (CCS) bases since the 2008 global financial crisis. Using a three-factor non-Gaussian-term structure model for the US Treasuries, an estimated short-rate premium in the yield curve tends to move in tandem with and lead the euro and Japanese yen CCS bases against the US dollar. The dynamics between the premium and CCS bases are found to be co-integrated, suggesting a long-run equilibrium between them. Empirically, the premium is found to be positively related to demand for Treasuries. This is consistent with recent studies in which factors including the strength of the US dollar, the demand for dollar funding and banks’ balance-sheet structures play important roles in determining the CCS bases. These factors increase demand for US Treasuries (high-quality US dollar assets) by investors searching for safe dollar assets and banks with higher leverages due to increased demand for dollar funding. The findings in this paper contribute to explaining the widespread failure of covered interest parity in foreign exchange swap markets.
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22

Cody, Brian J. "Exchange Controls, Political Risk and the Eurocurrency Market: New Evidence from Tests of Covered Interest Rate Parity." International Economic Journal 4, no. 2 (June 1990): 75–86. http://dx.doi.org/10.1080/10168739000000012.

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23

Özdemir, Durmus, and Harald Schmidbauer. "INTEREST RATE RISK IN TURKISH FINANCIAL MARKETS ACROSS DIFFERENT TIME PERIODS." Buletin Ekonomi Moneter dan Perbankan 16, no. 3 (September 17, 2014): 183–204. http://dx.doi.org/10.21098/bemp.v16i3.444.

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A Measuring the risk associated with interest rates is important since it is beneficial in taking measures before negative effects can take place in an economy. We obtain a risk measure for interest rates by fitting the generalized Pareto distribution (GPD) to positive extreme day-to-day changes of the interest rate, using data from the Istanbul Stock Exchange (ISE) Second Hand Bond Market, namely Government Bond interest rate closing quotations, for the time period 2001 through 2009. Although the use of the GPD in the context of absolute interest rates is well ocumented in literature, our approach is different insofar and contributes to the literature as changes in interest rates constitute the target of our analysis, reflecting the idea that risk arises from abrupt changes in interest rate rather than in interest rate levels themselves. Our study clearly shows that the GPD, when applied to interest rate changes, provides a good tool for interest rate risk assessment, and permit a period-specific risk evaluation. Keyword: Interest rate risk; covered interest parity; Turkey; generalized Pareto distributionJEL Classification: G1; C1
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24

Papadamou, Stephanos, and Evangelia Theodosiou. "An empirical investigation of covered interest rate parity: the case of the GBP/USD and SEK/USD exchange rates." International Journal of Financial Engineering and Risk Management 3, no. 2 (2019): 114. http://dx.doi.org/10.1504/ijferm.2019.101295.

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25

Özdemir, Durmus, and Harald Schmidbauer. "RISIKO TINGKAT SUKU BUNGA DI PASAR KEUANGAN TURKI PADA PERIODE WAKTU YANG BERBEDA." Buletin Ekonomi Moneter dan Perbankan 16, no. 3 (September 17, 2014): 195–218. http://dx.doi.org/10.21098/bemp.v16i3.21.

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A Measuring the risk associated with interest rates is important since it is beneficial in taking measures before negative effects can take place in an economy. We obtain a risk measure for interest rates by fitting the generalized Pareto distribution (GPD) to positive extreme day-to-day changes of the interest rate, using data from the Istanbul Stock Exchange (ISE) Second Hand Bond Market, namely Government Bond interest rate closing quotations, for the time period 2001 through 2009. Although the use of the GPD in the context of absolute interest rates is well ocumented in literature, our approach is different insofar and contributes to the literature as changes in interest rates constitute the target of our analysis, reflecting the idea that risk arises from abrupt changes in interest rate rather than in interest rate levels themselves. Our study clearly shows that the GPD, when applied to interest rate changes, provides a good tool for interest rate risk assessment, and permit a period-specific risk evaluation. Keyword: Interest rate risk; covered interest parity; Turkey; generalized Pareto distribution JEL Classification: G1; C1
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26

Kang, Min-woo. "Efficiency of Foreign Exchange and Its Related Derivatives Market: Evidence From Korea." International Journal of Financial Research 10, no. 2 (February 12, 2019): 92. http://dx.doi.org/10.5430/ijfr.v10n2p92.

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This study aims to test the efficiency of the Korean foreign exchange market and examine its determinants by employing several well-established methodologies based on current theoretical arguments on the forward rate unbiasedness hypothesis and covered interest rate parity. The empirical findings indicate that the foreign exchange market and its related derivatives markets were inefficient during the period 2006-2016, but have improved considerably after the 2008-2009 financial crisis. As the inefficiency prevailed for a long time, emphasis is on the presence of risk premia in the international financial market and the role of central bank intervention.
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27

Anderson, Alyssa G., Wenxin Du, and Bernd Schlusche. "Arbitrage Capital of Global Banks." Finance and Economics Discussion Series 2021, no. 032 (May 14, 2021): 1–66. http://dx.doi.org/10.17016/feds.2021.032.

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We show that the role of unsecured, short-term wholesale funding for global banks has changed significantly in the post-financial-crisis regulatory environment. Global banks mainly use such funding to finance liquid, near risk-free arbitrage positions—in particular, the interest on excess reserves arbitrage and the covered interest rate parity arbitrage. In this environment, we examine the response of global banks to a large negative wholesale funding shock as a result of the U.S. money market mutual fund reform implemented in 2016. In contrast to past episodes of wholesale funding dry-ups, we find that the primary response of global banks to the reform was a cutback in arbitrage positions that relied on unsecured funding, rather than a reduction in loan provision.
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28

Daejung Yang. "Analyzing Deep Deviation from Covered Interest Rate Parity for US dollar in the Advanced Financial Market after Global Financial Crisis and its Potential Risk." Review of International Money and Finance 7, no. 1 (May 2017): 119–53. http://dx.doi.org/10.34251/ifadoi.7.1.201705.004.

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29

Neto, Alberto Ronchi, and Osvaldo Candido. "Avaliação da Curva de Juros Empregando Extensões do Modelo de Diebold & Li com Três Fatores." Brazilian Review of Finance 13, no. 2 (November 5, 2015): 251. http://dx.doi.org/10.12660/rbfin.v13n2.2015.43174.

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This paper evaluates methods that employ Kalman Filter to estimate Diebold and Li (2006) extensions in a state-space representation, applying the Nelson and Siegel (1987) function as measure equation and different specifications for the transition equation that determines level, slope and curvature dynamics. The models that were analyzed have the following structures in transition equation: (1) AR(1) specification, employing a diagonal covariance matrix for the residuals; (2) VAR(1) specification, employing a covariance matrix calculated with Cholesky decomposition; (3) VAR(1) extension, inserting variables related to the Covered Interest Rate Parity (CIRP); (4) VAR(1) extension, including stochastic volatility components. The major findings of this paper were: (1) evaluating the latent variables dynamics, the curvature was the factor that fitted better to the stochastic volatility component; (2) in a broad sense, even though the simplest VAR(1) model was the one that provided the best out-of-sample performance in the most part of maturities and forecasting horizons, the extension inserting variables related to the CIRP was able to overcome the former specification in some of these simulations.
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30

Cerutti, Eugenio, Maurice Obstfeld, and Haonan Zhou. "Covered Interest Parity Deviations." IMF Working Papers 19, no. 14 (January 16, 2019): 1. http://dx.doi.org/10.5089/9781484390122.001.

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31

Csávás, Csaba. "Covered interest parity with default risk." European Journal of Finance 22, no. 12 (July 3, 2014): 1130–44. http://dx.doi.org/10.1080/1351847x.2014.924076.

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32

Moosa, Imad. "Covered interest parity: The untestable hypothesis." Journal of Post Keynesian Economics 40, no. 4 (October 2, 2017): 470–86. http://dx.doi.org/10.1080/01603477.2017.1352451.

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33

Cerutti, Eugenio M., Maurice Obstfeld, and Haonan Zhou. "Covered interest parity deviations: Macrofinancial determinants." Journal of International Economics 130 (May 2021): 103447. http://dx.doi.org/10.1016/j.jinteco.2021.103447.

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34

Moosa, Imad A., and Razzaque H. Bhatti. "Testing covered interest parity under Fisherian expectations." Applied Economics 28, no. 1 (January 1996): 71–74. http://dx.doi.org/10.1080/00036849600000009.

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35

Blenman, Lloyd P. "Tests of covered interest parity: a comment." Applied Economics Letters 2, no. 3 (March 1995): 49–50. http://dx.doi.org/10.1080/135048595357546.

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36

KIA, AMIR. "OVERNIGHT COVERED INTEREST PARITY: THEORY AND PRACTICE." International Economic Journal 10, no. 1 (April 1, 1996): 59–82. http://dx.doi.org/10.1080/10168739600080005.

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37

MacDonald, R., and T. S. Torrance. "Covered interest parity and UK monetary ‘news’." Economics Letters 26, no. 1 (January 1988): 53–56. http://dx.doi.org/10.1016/0165-1765(88)90051-1.

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38

Maennig, Wolfgang G. Ch, and Warren J. Tease. "Covered interest parity in non-dollar euromarkets." Weltwirtschaftliches Archiv 123, no. 4 (December 1987): 606–17. http://dx.doi.org/10.1007/bf02708569.

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39

Overturf, Stephen Frank. "Interest rate expectations and interest parity." Journal of International Money and Finance 5, no. 1 (March 1986): 91–98. http://dx.doi.org/10.1016/0261-5606(86)90052-5.

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40

Poitras, Geoffrey. "Arbitrage boundaries, treasury bills, and covered interest parity." Journal of International Money and Finance 7, no. 4 (January 1988): 429–45. http://dx.doi.org/10.1016/0261-5606(88)90026-5.

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41

Takezawa, Nobuya. "Currency swaps and long-term covered interest parity." Economics Letters 49, no. 2 (August 1995): 181–85. http://dx.doi.org/10.1016/0165-1765(95)00664-2.

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42

Crowder, William J. "Covered interest parity and international capital market efficiency." International Review of Economics & Finance 4, no. 2 (January 1995): 115–32. http://dx.doi.org/10.1016/1059-0560(95)90013-6.

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43

Ibhagui, Oyakhilome. "Covered interest parity deviations in standard monetary models." Journal of Economics and Business 111 (September 2020): 105909. http://dx.doi.org/10.1016/j.jeconbus.2020.105909.

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44

Ibhagui, Oyakhilome. "Stock market and deviations from covered interest parity." Journal of International Financial Markets, Institutions and Money 74 (September 2021): 101393. http://dx.doi.org/10.1016/j.intfin.2021.101393.

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45

MacDonald, Ronald, and Mark P. Taylor. "INTEREST RATE PARITY: SOME NEW EVIDENCE0." Bulletin of Economic Research 41, no. 4 (October 1989): 255–74. http://dx.doi.org/10.1111/j.1467-8586.1989.tb00342.x.

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46

Linnemann, Ludger, and Andreas Schabert. "Liquidity premia and interest rate parity." Journal of International Economics 97, no. 1 (September 2015): 178–92. http://dx.doi.org/10.1016/j.jinteco.2015.03.006.

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47

Ghosh, Dilip K. "The Interest Rate Parity: Seven Expressions." Financial Management 20, no. 4 (1991): 8. http://dx.doi.org/10.2307/3665705.

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48

Fletcher, Donna J., and Larry W. Taylor. ""Swap" Covered Interest Parity in Long-Date Capital Markets." Review of Economics and Statistics 78, no. 3 (August 1996): 530. http://dx.doi.org/10.2307/2109800.

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49

Popper, Helen. "Long-term covered interest parity: evidence from currency swaps." Journal of International Money and Finance 12, no. 4 (August 1993): 439–48. http://dx.doi.org/10.1016/0261-5606(93)90005-v.

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50

Czech, Katarzyna. "Uncovered interest rate parity on the Japanese yen exchange rate market." Oeconomia Copernicana 3, no. 3 (September 30, 2012): 63–77. http://dx.doi.org/10.12775/oec.2012.015.

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The aim of the paper is to verify the uncovered interest rate parity hypothesis on the Japanese yen exchange rate market. The article describes the theory of uncovered interest rate parity and presents the review of previous research results. Moreover, the paper characterizes the currency speculation strategy „carry trade” which is fundamentally based on the assumption that the uncovered interest rate parity doesn’t hold. The Japanese yen is one of the most popular „carry trade” funding currency and therefore the article is focused on the analysis of this exchange rate market.The uncovered interest rate parity condition suggests that „carry trade” strategy should not result in excess profits. However, the high average payoff to „carry trade” is widely documented by many researchers and thus it may imply that uncovered interest rate parity doesn’t hold on the Japanese yen market. The uncovered interest rate parity on the Japanese yen market is tested by applying the conventional regression approach and orthogonality test of the forward rate forecast error. The results show that it is hard to say definitely that uncovered interest rate parity holds on the analyzed exchange rate market. The uncovered interest rate parity hypothesis is rejected for JPY/TRY market. However, there is not enough evidence to reject UIP hypothesis for JPY/NZD and JPY/USD exchange rate markets.
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