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Measuring the risk premium in uncovered interest parity using the component GARCH-M model


Reference:

Li, D., Ghoshray, A. and Morley, B., 2012. Measuring the risk premium in uncovered interest parity using the component GARCH-M model. International Review of Economics & Finance, 24, pp. 167-176.

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    Official URL:

    http://dx.doi.org/10.1016/j.iref.2012.02.001

    Abstract

    The aim of this study is to analyze the potential risk premium inherent in the uncovered interest parity (UIP) condition. The component GARCH-in-mean model is used to measure the time-varying risk premium in UIP and separates the permanent and transitory risk. The results show that the risk premium is significant in most countries studied in this analysis. This suggests that risk is an important part of modeling exchange rates and needs to be considered in both empirical and theoretical models. In general, the results suggest emerging countries work better in terms of UIP and the risk premium than developed countries.

    Details

    Item Type Articles
    CreatorsLi, D., Ghoshray, A. and Morley, B.
    DOI10.1016/j.iref.2012.02.001
    DepartmentsFaculty of Humanities & Social Sciences > Economics
    Publisher StatementMorley_IREF_2012.pdf: NOTICE: this is the author’s version of a work that was accepted for publication in International Review of Economics & Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in International Review of Economics & Finance, vol 24, 2012, DOI 10.1016/j.iref.2012.02.001; Morley_IREF_2012.doc: NOTICE: this is the author’s version of a work that was accepted for publication in International Review of Economics & Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in International Review of Economics & Finance, vol 24, 2012, DOI 10.1016/j.iref.2012.02.001
    RefereedYes
    StatusPublished
    ID Code28788

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