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Is covered interest parity arbitrage extinct? Evidence from the spot USD/Yen

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  • J. A. Batten
  • P. G. Szilagyi

Abstract

We investigate the long-term covered interest parity (CIP) relationship between the US dollar and the Japanese yen. We find that the CIP relation tends to be one way and favours those with the ability to borrow US dollars. Regression analysis reveals that negative changes in spot exchange rates, positive changes in US interest rates and negative changes in yen interest rates generally affect the deviation from parity. Evidence of declining deviations from equilibrium over the sample period is consistent with a more efficient trading environment.

Suggested Citation

  • J. A. Batten & P. G. Szilagyi, 2010. "Is covered interest parity arbitrage extinct? Evidence from the spot USD/Yen," Applied Economics Letters, Taylor & Francis Journals, vol. 17(3), pages 283-287, February.
    • Handle: RePEc:taf:apeclt:v:17:y:2010:i:3:p:283-287
    DOI: 10.1080/13504850701720189
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    Cited by:

    1. Kuo-Shing Chen & Chien-Chiang Lee & Chun-Ming Chen, 2017. "Arbitrage, Covered Interest Parity and Cointegration Analysis on the New Taiwan Dollar/US Dollar FOREX Market Revisited," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 420-428.
    2. Yutaka Kurihara & Akio Fukushima, 2017. "The Market Efficiency of Bitcoin: A Weekly Anomaly Perspective," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 7(3), pages 1-4.
    3. Kuga Iakov & Elena Kuzmina, 2016. "Covered interest parity: evidence from Russian money market," EERC Working Paper Series 16/01e, EERC Research Network, Russia and CIS.
    4. Skinner, Frank S. & Mason, Andrew, 2011. "Covered interest rate parity in emerging markets," International Review of Financial Analysis, Elsevier, vol. 20(5), pages 355-363.

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