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Post-EMS exchange risk trends: A comparative perspective between Euro, British Pound and Japanese Yen excess returns against US Dollar

Author

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  • Yolanda Santana-Jiménez

    (Universidad de Las Palmas de Gran Canaria)

  • Jorge V. Pérez-Rodríguez

    (Universidad de Las Palmas de Gran Canaria)

Abstract

This paper studies the exchange rate risk of Euro, Pound and Yen against US Dollar before and after the EMU. The key question is to analyse the impact of the Euro to exchange rate risks. The risk is measured by estimating risk price coefficient (RPC) from an excess return equation. A conditional heteroskedastic variance model with time-varying mean is estimated for this purpose. Recursive estimates are used to examine the evolution of the parameters and to find out time-varying risk premia. Results show that after a period of adaptation following the introduction of the Euro, the Euro/US Dollar RPC decreased.

Suggested Citation

  • Yolanda Santana-Jiménez & Jorge V. Pérez-Rodríguez, 2007. "Post-EMS exchange risk trends: A comparative perspective between Euro, British Pound and Japanese Yen excess returns against US Dollar," Working Papers 07-06, Asociación Española de Economía y Finanzas Internacionales.
  • Handle: RePEc:aee:wpaper:0706
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    Keywords

    Exchange rate risk; GARCH-M; risk-price; times series; recursive estimation;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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