586
Views
4
CrossRef citations to date
0
Altmetric
Research Article

Uncovered Interest-rate Parity and Risk Premium: Evidence from EUR/RSD Exchange Rate

ORCID Icon

References

  • Abankwa, S. 2020. “FX Liquidity Risk and Forward Premium Puzzle.” Quarterly Journal of Finance and Accounting 58:101–31.
  • Adewuyi, A., and J. Ogebe. 2019. “The Validity of Uncovered Interest Parity: Evidence from African Members and Non-member of the Organisation of Petroleum Exporting Countries (OPEC).” Economic Modelling 82:229–49. doi:10.1016/j.econmod.2019.01.008.
  • Ahmad, R., S. Rhee, and Y. Wong. 2012. “Foreign Exchange Market Efficiency under Recent Crises: Asia-Pacific Focus.” Journal of International Money and Finance 31 (6):1574–92. doi:10.1016/j.jimonfin.2012.02.016.
  • Atanasijević, J., and M. Božović. 2016. “Exchange Rate as a Determinant of Corporate Loan Defaults in a Euroized Economy: Evidence from Micro-level Data.” Eastern European Economics 54 (3):228–50. doi:10.1080/00128775.2015.1137198.
  • Aysun, U., and S. Lee. 2014. “Can Time-varying Risk Premiums Explain the Excess Returns in the Interest Rate Parity Condition?” Emerging Markets Review 18:78–100. doi:10.1016/j.ememar.2014.01.002.
  • Bacchetta, P., and E. van Wincoop. 2007. “Random Walk Expectations and the Forward Discount Puzzle.” American Economic Review 97 (2):346–50. doi:10.1257/aer.97.2.346.
  • Bacchetta, P., and E. van Wincoop. 2010. “Infrequent Portfolio Decisions: A Solution to the Forward Discount Puzzle.” American Economic Review 100 (3):870–904. doi:10.1257/aer.100.3.870.
  • Baillie, R., and R. Kiliç. 2006. “Do Asymmetric and Nonlinear Adjustments Explain the Forward Premium Anomaly?” Journal of International Money and Finance 25 (1):22–47. doi:10.1016/j.jimonfin.2005.10.002.
  • Bansal, R. 1997. “An Exploration of the Forward Premium Puzzle in Currency Markets.” Review of Financial Studies 10 (2):369–403. doi:10.1093/rfs/10.2.369.
  • Bansal, R., and M. Dahlquist. 2000. “The Forward Premium Puzzle: Different Tales from Developed and Emerging Economies.” Journal of International Economics 51 (1):115–44. doi:10.1016/S0022-1996(99)00039-2.
  • Bekaert, G., M. Wei, and Y. Xing. 2007. “Uncovered Interest Rate Parity and the Term Structure.” Journal of International Money and Finance 26 (6):1038–69. doi:10.1016/j.jimonfin.2007.05.004.
  • Bera, A., and M. Higgins. 1993. “ARCH Models: Properties, Estimation and Testing.” Journal of Economic Surveys 7 (4):305–62. doi:10.1111/j.1467-6419.1993.tb00170.x.
  • Berg, K., and N. Mark. 2018. “Global Macro Risks in Currency Excess Returns.” Journal of Empirical Finance 45:300–15. doi:10.1016/j.jempfin.2017.11.011.
  • Berk, J., and K. Knot. 2001. “Testing for Long Horizon UIP Using PPP-based Exchange Rate Expectations.” Journal of Banking and Finance 25 (2):377–91. doi:10.1016/S0378-4266(00)00083-2.
  • Bollerslev, T. 1986. “Generalized Autoregressive Conditional Heteroskedasticity.” Journal of Econometrics 31 (3):307–27.
  • Burnside, C., M. Cerrato, and Z. Zhang 2020, May. “Foreign Exchange Order Flow as a Risk Factor.” Working Paper 27199, National Bureau of Economic Research.
  • Burnside, C., M. Eichenbaum, I. Kleshchelski, and S. Rebelo. 2011. “Do Peso Problems Explain the Returns to the Carry Trade?” Review of Financial Studies 24 (3):853–91. doi:10.1093/rfs/hhq138.
  • Byrne, J., and E. Davis. 2005. “The Impact of Short- and Long-run Exchange Rate Uncertainty on Investment: A Panel Study of Industrial Countries.” Oxford Bulletin of Economics and Statistics 67 (3):307–29. doi:10.1111/j.1468-0084.2005.00121.x.
  • Campbell, J., and J. Cochrane. 1999. ““By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior.” Journal of Political Economy 107 (2):205–51. doi:10.1086/250059.
  • Chari, V., P. Kehoe, and E. McGrattan. 2002. “Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?” Review of Economic Studies 69 (3):633–63. doi:10.1111/1467-937X.00216.
  • Cheung, Y.-W., M. Chinn, A. Pascual, and Y. Zhang. 2019. “Exchange Rate Prediction Redux: New Models, New Data, New Currencies.” Journal of International Money and Finance 95:332–62. doi:10.1016/j.jimonfin.2018.03.010.
  • Chinn, M. 2006. “The (Partial) Rehabilitation of Interest Rate Parity in the Floating Rate Era: Longer Horizons, Alternative Expectations, and Emerging Markets.” Journal of International Money and Finance 25 (1):7–21. doi:10.1016/j.jimonfin.2005.10.003.
  • Chinn, M., and J. Frankel. 1994. “Patterns in Exchange Rate Forecasts for 25 Currencies.” Journal of Money, Credit and Banking 26 (4):759–70. doi:10.2307/2077945.
  • Chinn, M., and G. Meredith. 2004. “Monetary Policy and Long-Horizon Uncovered Interest Parity.” IMF Staff Paper 51 (3):409–30. Washington, DC: International Monetary Fund.
  • Chinn, M., and G. Meredith 2005. “Testing Uncovered Interest Parity at Short and Long Horizons during the post-Bretton Woods Era.” NBER Working Paper No. 11077, National Bureau of Economic Research.
  • Christensen, B., and M. Nielsen. 2007. “The Effect of Long Memory in Volatility on Stock Market Fluctuations.” Review of Economics and Statistics 89 (4):684–700. doi:10.1162/rest.89.4.684.
  • Coulibaly, D., and H. Kempf. 2019. “Inflation Targeting and the Forward Bias Puzzle in Emerging Countries.” Journal of International Money and Finance 90:19–33. doi:10.1016/j.jimonfin.2018.09.003.
  • Della Corte, P., and A. Krecetovs. 2019. “Macro Uncertainty and Currency Premia.” Available at SSRN. https://ssrn.com/abstract=2924766.
  • Della Corte, P., S. Riddiough, and L. Sarno. 2016. “Currency Premia and Global Imbalances.” Review of Financial Studies 29:2161–93.
  • Ding, Z., C. Granger, and R. Engle. 1993. “A Long Memory Property of Stock Market Returns and A New Model.” Journal of Empirical Finance 1 (1):83–106. doi:10.1016/0927-5398(93)90006-D.
  • Domowitz, I., and C. Hakkio. 1985. “Conditional Variance and the Risk Premium in Foreign Exchange Markets.” Journal of International Economics 19 (1–2):47–66. doi:10.1016/0022-1996(85)90018-2.
  • Egilsson, J. 2020. “How Raising Interest Rates Can Cause Inflation and Currency Depreciation.” Journal of Applied Economics 23 (1):450–68. doi:10.1080/15140326.2020.1795526.
  • Engel, C. 1996. “The Forward Discount Anomaly and the Risk Premium: A Survey of Recent Evidence.” Journal of Empirical Finance 3 (2):123–92. doi:10.1016/0927-5398(95)00016-X.
  • Engel, C., D. Lee, C. Liu, C. Liu, and S. Pak Yeung Wu. 2019. “The Uncovered Interest Parity Puzzle, Exchange Rate Forecasting, and Taylor Rules.” Journal of International Money and Finance 95:317–31. doi:10.1016/j.jimonfin.2018.03.008.
  • Engel, C., and K. West. 2005. “Exchange Rates and Fundamentals.” Journal of Political Economy 113 (3):485–517. doi:10.1086/429137.
  • Engle, R., and G. Lee. 1999. “A Long-run and Short-run Component Model of Stock Return Volatility.” In Cointegration, Causality and Forecasting, edited by R. Engle and H. White,  pp. 475-497. Oxford: Oxford University Press.
  • Engle, R., D. Lilien, and R. Robins. 1987. “Estimating Time Varying Risk Premia in the Term Structure: The ARCH-M Model.” Econometrica 55:391–407.
  • Fama, E. 1984. “Forward and Spot Exchange Rates.” Journal of Monetary Economics 14 (3):319–38. doi:10.1016/0304-3932(84)90046-1.
  • Farhi, E., and X. Gabaix. 2016. “Rare Disasters and Exchange Rates.” Quarterly Journal of Economics 131:1–52.
  • Ferreira, A., and M. León-Ledesma. 2007. “Does the Real Interest Parity Hypothesis Hold? Evidence for Developed and Emerging Markets.” Journal of International Money and Finance 26 (3):364–82. doi:10.1016/j.jimonfin.2006.11.003.
  • Flood, R., and N. Marion. 2000. “Self-fulfilling Risk Predictions: An Application to Speculative Attacks.” Journal of International Economics 50:245–68.
  • Francis, B., I. Hasan, and D. Hunter. 2002. “Emerging Market Liberalization and the Impact on Uncovered Interest Rate Parity.” Journal of International Money and Finance 21 (6):931–56. International Financial Integration. doi:10.1016/S0261-5606(02)00029-3.
  • Frankel, J., and J. Poonawala. 2010. “The Forward Market in Emerging Currencies: Less Biased than in Major Currencies.” Journal of International Money and Finance 29 (3):585–98. doi:10.1016/j.jimonfin.2009.11.004.
  • Galí, J. 2020, February. “Uncovered Interest Parity, Forward Guidance, and the Exchange Rate.” Working Paper 26797, National Bureau of Economic Research.
  • Glosten, L., R. Jagannathan, and D. Runkle. 1993. “On the Relation between the Expected Value and the Volatility of Nominal Excess Return on Stocks.” Journal of Finance 48 (5):1779–801. doi:10.1111/j.1540-6261.1993.tb05128.x.
  • Goh, S., G. Lim, and N. Olekalns. 2006. “Deviations from Uncovered Interest Parity in Malaysia.” Applied Financial Economics 16:745–59.
  • Hodrick, R. 1987. The Empirical Evidence on the Efficiency of Forward and Futures Foreign Exchange Markets. Chur, Switzerland: Harwood Academic Publishers.
  • IMF. 2019. Annual Report on Exchange Arrangements and Exchange Restrictions 2018. Washington, DC: International Monetary Fund.
  • Ingersoll, J. 1989. Theory of Financial Decision Making. Lanham, MD: Rowman and Littlefield.
  • Ismailov, A., and B. Rossi. 2018. “Uncertainty and Deviations from Uncovered Interest Rate Parity.” Journal of International Money and Finance 88:242–59.
  • Josifidis, K., J.-P. Allegret, and E. Beker Pucar. 2011. “Inflation Targeting and Exchange Rate Regimes in Serbia and Selected Transition Economies.” Eastern European Economics 49 (4):88–105. doi:10.2753/EEE0012-8775490405.
  • Karanasos, M., and J. Kim. 2007. “A Re-examination of the Asymmetric Power ARCH Model.” Journal of Empirical Finance 13 (1):113–28. doi:10.1016/j.jempfin.2005.05.002.
  • Krol, R. 2014. “Economic Policy Uncertainty and Exchange Rate Volatility.” International Finance 17 (2):241–55. doi:10.1111/infi.12049.
  • Kumar, S. 2019. “Does Risk Premium Help Uncover the Uncovered Interest Parity Failure?” Journal of International Financial Markets, Institutions and Money 63:101135.
  • Lee, B.-J. 2011. “Uncovered Interest Parity: Cross-Sectional Evidence.” Review of International Economics 19 (2):219–31. doi:10.1111/j.1467-9396.2011.00942.x.
  • Lee, S., and K. Jung. 2020. “A Liquidity-Based Resolution of the Uncovered Interest Parity Puzzle.” Journal of Money, Credit and Banking 52 (6):1397–433. doi:10.1111/jmcb.12663.
  • Lewis, K. 1989. “Changing Beliefs and Systematic Rational Forecast Errors with Evidence from Foreign Exchange.” American Economic Review 79:621–36.
  • Li, D., A. Ghoshray, and B. Morley. 2012. “Measuring the Risk Premium in Uncovered Interest Parity Using the Component GARCH-M Model.” International Review of Economics and Finance 24:167–76. doi:10.1016/j.iref.2012.02.001.
  • Lothian, J. 2016. “Uncovered Interest Parity: The Long and the Short of It.” Journal of Empirical Finance 36:1–7. doi:10.1016/j.jempfin.2015.12.001.
  • Lothian, J., R. Pownall, and K. Koedijk. 2013. “I Discovered the Peso Problem: Irving Fisher and the UIP Puzzle.” Journal of International Money and Finance 38:5–17.
  • Lothian, J., and L. Wu. 2011. “Uncovered Interest-rate Parity over the past Two Centuries.” Journal of International Money and Finance 30 (3):448–73. doi:10.1016/j.jimonfin.2011.01.005.
  • Lux, T., and M. Marchesi. 2000. “Volatility Clustering in Financial Markets: A Micro-simulation of Interacting Agents.” International Journal of Theoretical and Applied Finance 3 (4):675–702. doi:10.1142/S0219024900000826.
  • McCallum, B. 1994. “A Reconsideration of the Uncovered Interest Parity Relationship.” Journal of Monetary Economics 33 (1):105–32. doi:10.1016/0304-3932(94)90016-7.
  • Mehl, A., and L. Cappiello. 2009. “Uncovered Interest Parity at Long Horizons: Evidence on Emerging Economies.” Review of International Economics 17:1019–37.
  • Menkoff, L., L. Sarno, M. Schmeling, and A. Schrimpf. 2012. “Carry Trades and Global Foreign Exchange Volatility.” Journal of Finance 67 (2):681–718. doi:10.1111/j.1540-6261.2012.01728.x.
  • Molodtsova, T., and D. Papell. 2009. “Out-of-sample Exchange Rate Predictability with Taylor Rule Fundamentals.” Journal of International Economics 77 (2):167–80. doi:10.1016/j.jinteco.2008.11.001.
  • Mueller, P., A. Tahbaz-Salehi, and A. Vedolin. 2017. “Exchange Rates and Monetary Policy Uncertainty.” Journal of Finance 72:1213–52.
  • Nedeljković, M., and B. Urošević. 2012. “Determinants of the Dinar-Euro Nominal Exchange Rate.” Journal for Economic Forecasting 3: 121–41.
  • Nelson, C., and A. Siegel. 1987. “Parsimonious Modeling of Yield Curves.” Journal of Business 60 (4):473–89. doi:10.1086/296409.
  • Nelson, D. 1990. “ARCH Models as Diffusion Approximations.” Journal of Econometrics 45 (1–2):7–38. doi:10.1016/0304-4076(90)90092-8.
  • Petrović, P. 2013. “Testing of Empirical Grounds for Theoretical Models of Real Exchange Rate: Research of Real Exchange Rate between RSD and Euro.” Industrija 41 (1):99–115. doi:10.5937/industrija41-3522.
  • Rossi, B. 2013. “Exchange Rate Predictability.” Journal of Economic Literature 51 (4):1063–119. doi:10.1257/jel.51.4.1063.
  • Sarantis, N. 2006. “Testing the Uncovered Interest Parity Using Traded Volatility, a Timevarying Risk Premium and Heterogeneous Expectations.” Journal of International Money and Finance 25 (7):1168–86. doi:10.1016/j.jimonfin.2006.08.002.
  • Sarno, L., G. Valente, and H. Leon. 2006. “Nonlinearity in Deviations from Uncovered Interest Parity: An Explanation of the Forward Bias Puzzle.” Review of Finance 10:443–82.
  • Spronk, R., W. Verschoor, and R. Zwinkels. 2013. “Carry Trade and Foreign Exchange Rate Puzzles.” European Economic Review 60:853–91. doi:10.1016/j.euroecorev.2013.01.007.
  • Stoupos, N., and A. Kiohos. 2017. “Post-Communist Countries of the EU and the Euro: Dynamic Linkages between Exchange Rates.” Acta Oeconomica 67 (4):511–38. doi:10.1556/032.2017.67.4.2.
  • Verdelhan, A. 2010. “A Habit-Based Explanation of the Exchange Rate Risk Premium.” Journal of Finance 65 (1):123–46. doi:10.1111/j.1540-6261.2009.01525.x.
  • Wu, Y., and H. Zhang. 1996. “Asymmetry in Forward Exchange Rate Bias: A Puzzling Result.” Economics Letters 50 (3):407–11. doi:10.1016/0165-1765(95)00759-8.

Reprints and Corporate Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

To request a reprint or corporate permissions for this article, please click on the relevant link below:

Academic Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

Obtain permissions instantly via Rightslink by clicking on the button below:

If you are unable to obtain permissions via Rightslink, please complete and submit this Permissions form. For more information, please visit our Permissions help page.