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Abnormal profitability and foreign investment based on the investigation of covered interest parity

Author

Listed:
  • Huang, Bor-Yi
  • Chiou, Jer-Shiou
  • Wu, Pei-Shan

Abstract

Most literature focuses on how foreign investment and the market returns are related. Instead, this study attempts to identify the origin of abnormal behavior by foreign investors, as well as the relationship among the error in covered interest parity (ECIP), foreign investment (INV), and stock returns (RS). This study finds that the behavior of ECIP can be accurately represented by the ARJI model, which is capable of describing sudden jumps in the economy. Consequently, CBP-ARJI thus provides an effective means of studying the interaction among underlying variables.

Suggested Citation

  • Huang, Bor-Yi & Chiou, Jer-Shiou & Wu, Pei-Shan, 2007. "Abnormal profitability and foreign investment based on the investigation of covered interest parity," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 384(2), pages 475-484.
  • Handle: RePEc:eee:phsmap:v:384:y:2007:i:2:p:475-484
    DOI: 10.1016/j.physa.2007.05.048
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    References listed on IDEAS

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    7. Jer-Shiou Chiou & Pei-Shan Wu & Antony Chang & Bor-Yi Huang, 2007. "The asymmetric information and price manipulation in stock market," Applied Economics, Taylor & Francis Journals, vol. 39(7), pages 883-891.
    8. Wing H. Chan, 2003. "A correlated bivariate Poisson jump model for foreign exchange," Empirical Economics, Springer, vol. 28(4), pages 669-685, November.
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