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Is it risk? : Explaining deviations from uncovered interest parity

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  • Cumby, Robert E.

Abstract

This paper analyzes ex-ante returns to forward speculation and asks if these returns can be explained by models of a foreign exchange risk premium. After presenting evidence that both nominal and real expected speculative profits are non-zero, the paper examines if real returns to forward speculation are consistent with consumption-based models of risk premia. Estimates of the conditional covariance between real speculative returns and real consumption growth are presented and, like ex-ante returns to forward speculation, they exhibit statistically significant fluctuations over time and often change sign.

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File URL: http://www.sciencedirect.com/science/article/B6VBW-45GSFTJ-3D/2/8e67146747544e5191c0a7e45694f08c
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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 22 (1988)
Issue (Month): 2 (September)
Pages: 279-299

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Handle: RePEc:eee:moneco:v:22:y:1988:i:2:p:279-299

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Web page: http://www.elsevier.com/locate/inca/505566

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