Uncovered interest parity: it works, but not for long

• 成果类型: Article
• 署名作者: Chaboud, AP; Wright, JH
• 署名单位: Federal Reserve System - USA; Federal Reserve System Board of Governors
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2004.07.004
• 发表日期: 2005
• 页码: 349-362
• 关键词: uncovered interest parity; settlement; Foreign exchange; High frequency data

摘要

if an investor borrows in a low interest currency and invests in a high interest currency, the interest differential accrues in a lumpy manner, formally just like the dividend payments on a stock. The investor will receive the interest differential discretely at the point when a position is rolled over from one day to the next. A position that is not held open overnight receives no interest differential because intradaily interest rates are zero. Using a large data set of intradaily exchange rate data, we run uncovered interest parity (UIP) regressions over different short time intervals taking careful account of the settlement rules in the spot foreign exchange market. We find results that are supportive of the uncovered interest parity hypothesis over very short windows of data that span the time of the discrete interest payment. However, adding even a few hours to the span of the window destroys the positive uncovered interest parity results. Published by Elsevier B.V.