Munich Personal RePEc Archive

Variance Risk Premium Differentials and Foreign Exchange Returns

Arash, Aloosh (2011): Variance Risk Premium Differentials and Foreign Exchange Returns. Published in: EFA Doctoral Tutorial 2012 (18. August 2012)

[img]
Preview
PDF
MPRA_paper_40829.pdf

Download (1130Kb) | Preview

Abstract

The uncovered interest rate parity does not hold in the foreign exchange market (UIP puzzle). I use the cross-country variance risk premium differential to measure the excess foreign exchange return. Consequently, similar to Bansal and Shaliastovich (2010), I provide a risk-based explanation for the violation of UIP. The empirical results, based on the monthly data of ten currency pairs among US Dollar, UK Pound, Japanese Yen, Euro, and Swiss Franc, support the model both in-sample and out-of-sample.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.