Uncovered Interest Parity and the Risk Premium

Dandan Li; A. Ghoshray; B. Morley

Uncovered Interest Parity and the Risk Premium

Dandan Li, A. Ghoshray, B. Morley

Department of Economics

Research output: Working paper / Preprint › Working paper

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Abstract

The aim of this study is to analyze the potential risk premium inherent in the uncovered interest parity (UIP) condition. In this approach the GARCH class models, including Component GARCH are used to measure the time-varying risk premium and the results show that it 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.

Original language	English
Place of Publication	Bath, U. K.
Publisher	Department of Economics, University of Bath
Publication status	Published - 2011

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Name	Bath Economics Research Working Papers
No.	02/11

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Uncovered Interest Parity and the Risk Premium

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