Byrne, Joseph P and Nagayasu, Jun (2011): Common factors of the exchange risk premium in emerging European markets.
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Existing empirical evidence suggests that the Uncovered Interest Rate Parity (UIRP) condition may not hold due to an exchange risk premium. For a panel data set of eleven emerging European economies we decompose this exchange risk premium into an idiosyncratic (country-specific) element and a common factor using a principal components approach. We present evidence of stationary idiosyncratic and common factors. This result leads to the conclusion of a stationary risk premium for these countries, which is consistent with previous studies often documenting a stationary premium in developed countries. Furthermore, we report that the variation in the premium is largely attributable to a common factor influenced by economic developments in the United States.
|Item Type:||MPRA Paper|
|Original Title:||Common factors of the exchange risk premium in emerging European markets|
|Keywords:||Uncovered Interest Rate Parity, Emerging Economies, Exchange Risk Premiums, Common Factors|
|Subjects:||F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics|
|Depositing User:||Nagayasu Jun|
|Date Deposited:||10. Jun 2011 13:42|
|Last Modified:||13. Feb 2013 07:59|
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