The literature assumes that the theory of uncovered interest parity fails because investing without cover is risky and investors are risk adverse. But covered interest parity implies that the theory can fail even when investors are risk neutral and hold when investors are risk adverse and there...

A complete solution to the forward-bias puzzle should provide an econometric solution and an economic explanation for that solution. A complete solution should also explain the closely related failure of uncovered interest parity. In addition it should explain some related anomalies. One such...

The forward-bias puzzle is probably the most important puzzle in international finance. But there is a simple solution. Covered interest parity implies that the forward-bias puzzle is the result of two omitted variables: (1) the future change in the forward exchange rate and (2) the future...