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The Elasticity of Substitution across Maturities in International Capital Markets: A Simple Test


  • Drakos, Konstantinos

    () (University of Patras)


The paper tests the hypothesis of a maturity-independent foreign exchange risk premium or equivalently of a constant elasticity of substitution of international assets across the maturity spectrum. The empirical findings indicate that elasticity of substitution is indeed a function of maturity. In addition, the premia are found to be a monotonic function of the maturity distance between assets.

Suggested Citation

  • Drakos, Konstantinos, 2005. "The Elasticity of Substitution across Maturities in International Capital Markets: A Simple Test," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 20, pages 727-745.
  • Handle: RePEc:ris:integr:0338

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    More about this item


    Elasticity of Substitution; Risk Premium; Expectations Hypothesis; Term Structure;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets


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