TY - JOUR
T1 - Measuring the risk premium in uncovered interest parity using the component GARCH-M model
AU - Li, Dandan
AU - Ghoshray, Atanu
AU - Morley, Bruce
PY - 2012/6
Y1 - 2012/6
N2 - The aim of this study is to analyze the potential risk premium inherent in the uncovered interest parity (UIP) condition. The component GARCH-in-mean model is used to measure the time-varying risk premium in UIP and separates the permanent and transitory risk. The results show that the risk premium is significant in most countries studied in this analysis. This suggests that risk is an important part of modeling exchange rates and needs to be considered in both empirical and theoretical models. In general, the results suggest emerging countries work better in terms of UIP and the risk premium than developed countries.
AB - The aim of this study is to analyze the potential risk premium inherent in the uncovered interest parity (UIP) condition. The component GARCH-in-mean model is used to measure the time-varying risk premium in UIP and separates the permanent and transitory risk. The results show that the risk premium is significant in most countries studied in this analysis. This suggests that risk is an important part of modeling exchange rates and needs to be considered in both empirical and theoretical models. In general, the results suggest emerging countries work better in terms of UIP and the risk premium than developed countries.
UR - http://www.scopus.com/inward/record.url?scp=84862809214&partnerID=8YFLogxK
UR - http://dx.doi.org/10.1016/j.iref.2012.02.001
U2 - 10.1016/j.iref.2012.02.001
DO - 10.1016/j.iref.2012.02.001
M3 - Article
VL - 24
SP - 167
EP - 176
JO - International Review of Economics & Finance
JF - International Review of Economics & Finance
ER -