Uncovered Interest Parity and the Risk Premium

Dandan Li, A. Ghoshray, B. Morley

Research output: 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 languageEnglish
Place of PublicationBath, U. K.
PublisherDepartment of Economics, University of Bath
Publication statusPublished - 2011

Publication series

NameBath Economics Research Working Papers
No.02/11

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    Li, D., Ghoshray, A., & Morley, B. (2011). Uncovered Interest Parity and the Risk Premium. (Bath Economics Research Working Papers; No. 02/11). Department of Economics, University of Bath.