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The risk adjusted uncovered equity parity


  • Kim, Heeho


This paper explores the risk adjusted uncovered equity parity model to investigate a degree of market integration for four Asian emerging markets relative to the U.S., Japan and the U.K. from January 1994 to July 2008. The uncovered equity parity is revised to take into account of market risk in a framework of a portfolio rebalancing model. Evidence was found to strongly support our hypotheses; Market risk is significant in international capital flows between the Asian emerging markets and the developed economies, and it can help explain the failure of a traditional uncovered equity (or interest) parity model. The relationship between returns and an appreciation of the exchange rate are divided between the Asian emerging markets and the developed economies, depending on the direction of capital flows.

Suggested Citation

  • Kim, Heeho, 2011. "The risk adjusted uncovered equity parity," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1491-1505.
  • Handle: RePEc:eee:jimfin:v:30:y:2011:i:7:p:1491-1505 DOI: 10.1016/j.jimonfin.2011.06.020

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    References listed on IDEAS

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    Cited by:

    1. Curcuru, Stephanie E. & Thomas, Charles P. & Warnock, Francis E. & Wongswan, Jon, 2014. "Uncovered Equity Parity and rebalancing in international portfolios," Journal of International Money and Finance, Elsevier, vol. 47(C), pages 86-99.
    2. repec:bla:reviec:v:25:y:2017:i:4:p:924-947 is not listed on IDEAS
    3. Jung, Kuk Mo, 2015. "Liquidity Risk and Time-Varying Correlation Between Equity and Currency Returns," MPRA Paper 67416, University Library of Munich, Germany.
    4. Gino Cenedese & Richard Payne & Lucio Sarno & Giorgio Valente, 2016. "What Do Stock Markets Tell Us about Exchange Rates?," Review of Finance, European Finance Association, vol. 20(3), pages 1045-1080.
    5. Kyungkeun Kim & Dongwon Lee, 2017. "Equity Market Globalization and Portfolio Rebalancing," Working Papers 2017-17, Economic Research Institute, Bank of Korea.
    6. Ülkü, Numan & Fatullayev, Sabutay & Diachenko, Daria, 2016. "Can risk-rebalancing explain the negative correlation between stock return differential and currency? Or, does source status drive it?," Journal of Financial Markets, Elsevier, vol. 27(C), pages 28-54.
    7. Kim, Heeho & Cho, Seong-Hoon & Kim, Yongku, 2015. "Home bias, risk differential, and cultural spatial spillover effects," Journal of International Money and Finance, Elsevier, vol. 51(C), pages 114-136.
    8. repec:bla:ecinqu:v:55:y:2017:i:2:p:898-919 is not listed on IDEAS

    More about this item


    Capital market; Risk adjusted equity parity; Portfolio equity flows; Market risk;

    JEL classification:

    • F1 - International Economics - - Trade
    • F3 - International Economics - - International Finance
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)


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