Excess Returns in a Small Open Economy
This paper presents detailed analysis of a very unusual event--a recent six-year period during which big excess returns were earned on the short-term interest-bearing assets of a small open economy: Australia. A risk premium does not explain the excess return. Rather than requiring a risk premium, market participants continually expected significant real depreciation of the Australian dollar, despite the fact that on average it appreciated in real terms. The authors' results may be a consequence of the foreign exchange market only gradually learning about the changed nature of the world capital market in the 1980s. Copyright 1994 by The Economic Society of Australia.
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Volume (Year): 70 (1994)
Issue (Month): 211 (December)
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