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Covered Interest Arbitrage and Market Turbulence: An Empirical Analysis

Taylor, Mark P - C.E.P.R. Discussion Papers - 1988

other considerations. The analysis suggests three important conclusions. First, profitable arbitrage opportunities do … of profitable arbitrage opportunities appear to be a positive function of the length of maturity. We propose an …

Persistent link: https://www.econbiz.de/10005791343

ECU Interest Rates and ECU Basket Adjustments: An Arbitrage Pricing Approach

Klein, Martin - C.E.P.R. Discussion Papers - 1990

This paper considers arbitrage pricing of bonds and the determination of interest rates in the European Currency Unit … existing member currency assets and the member currencies' exchange rates. Using the technical apparatus of arbitrage pricing … theory it is shown how the fundamental arbitrage pricing relationships implied by the derivative character of the ecu have to …

Persistent link: https://www.econbiz.de/10005656422

The Returns to Currency Speculation in Emerging Markets

Burnside, Craig; Eichenbaum, Martin; Rebelo, Sérgio - C.E.P.R. Discussion Papers - 2007

The carry trade strategy involves selling forward currencies that are at a forward premium and buying forward currencies that are at a forward discount. We compare the payoffs to the carry trade applied to two different portfolios. The first portfolio consists exclusively of developed country...

Persistent link: https://www.econbiz.de/10005504278

Target Zones in Theory and History: Credibility, Efficiency, and Policy Autonomy

Flandreau, Marc; Komlos, John - C.E.P.R. Discussion Papers - 2005

A natural experiment with an exchange-rate band in Austria-Hungary in the early 20th century provides a rare opportunity to discuss critical aspects of the theory of target zones. Providing a new derivation of the target zone model as a set of nested hypotheses, the inference is drawn that...

Persistent link: https://www.econbiz.de/10005661480

Country Size, Currency Unions, and International Asset Returns

Hassan, Tarek - C.E.P.R. Discussion Papers - 2012

Differences in real interest rates across developed economies are puzzlingly large and persistent. I propose a simple explanation: Bonds issued in the currencies of larger economies are expensive because they insure against shocks that affect a larger fraction of the world economy. I show that...

Persistent link: https://www.econbiz.de/10011083930

Understanding the Forward Premium Puzzle: A Microstructure Approach

Burnside, Craig; Eichenbaum, Martin; Rebelo, Sérgio - C.E.P.R. Discussion Papers - 2007

High-interest-rate currencies tend to appreciate relative to low-interest-rate currencies. We argue that adverse-selection problems between participants in foreign exchange markets can account for this `forward premium puzzle.' The key feature of our model is that the adverse selection problem...

Persistent link: https://www.econbiz.de/10005067669

Do Peso Problems Explain the Returns to the Carry Trade?

Burnside, Craig; Eichenbaum, Martin; Kleshchelski, Isaac; … - C.E.P.R. Discussion Papers - 2008

Currencies that are at a forward premium tend to depreciate. This `forward-premium puzzle' is an egregious deviation from uncovered interest parity. We document the properties of the carry trade, a currency speculation strategy that exploits this anomaly. This strategy consists of borrowing...

Persistent link: https://www.econbiz.de/10005661443

The Returns to Currency Speculation

Burnside, Craig; Eichenbaum, Martin; Kleshchelski, Isaac; … - C.E.P.R. Discussion Papers - 2006

Currencies that are at a forward premium tend to depreciate. This ‘forward-premium puzzle’ represents an egregious deviation from uncovered interest parity. We document the properties of returns to currency speculation strategies that exploit this anomaly. The first strategy, known as the...

Persistent link: https://www.econbiz.de/10005661967

Nonlinearity in Deviations from Uncovered Interest Parity: An Explanation of the Forward Bias Puzzle

Leon, Hyginus; Sarno, Lucio; Valente, Giorgio - C.E.P.R. Discussion Papers - 2006

We provide empirical evidence that deviations from the uncovered interest rate parity (UIP) condition display significant nonlinearities, consistent with theories based on transactions costs or limits to speculation. This evidence suggests that the forward bias documented in the literature may...

Persistent link: https://www.econbiz.de/10005666605

Exchange Rate Premia and the Credibility of the Crawling Target Zone in Hungary

Darvas, Zsolt - C.E.P.R. Discussion Papers - 1996

After the introduction of a preannounced crawling peg exchange rate regime in Hungary in March 1995, forward and futures rates of more than six months maturity exceeded the upper edge of the projected target zone of the Forint. This paper examines whether this fact reflects an additional...

Persistent link: https://www.econbiz.de/10005791232