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Covered interest rate parity in emerging markets

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  • Skinner, Frank S.
  • Mason, Andrew
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    Abstract

    This paper finds that while covered interest rate parity holds for large and small triple A rated economies, it holds for emerging markets only for a three-month maturity. For a five-year horizon the size and frequency of violations lead to the conclusion that covered interest rate parity does not hold for longer maturities for Brazil, Chile, Russia and South Korea. Overall this paper finds that aspects of credit risk are the source of violations in CIRP in the long-term capital markets rather than transactions costs or the size of the economy.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Financial Analysis.

    Volume (Year): 20 (2011)
    Issue (Month): 5 ()
    Pages: 355-363

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    Handle: RePEc:eee:finana:v:20:y:2011:i:5:p:355-363

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    Web page: http://www.elsevier.com/locate/inca/620166

    Related research

    Keywords: Covered interest rate parity; CDS; Credit risk;

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    Cited by:
    1. Christodoulakis, George & Mamatzakis, Emmanuel, 2013. "Behavioural asymmetries in the G7 foreign exchange market," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 261-270.
    2. Simpson, Marc W. & Grossmann, Axel, 2014. "An examination of the forward prediction error of U.S. dollar exchange rates and how they are related to bid-ask spreads, purchasing power parity disequilibria, and forward premium asymmetry," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 221-238.

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