Deviations from the Covered Interest Rate Parity

Mads Rønfeldt Nielsen

Studenteropgave: Kandidatafhandlinger

Abstrakt

Within this paper, I study the significance and persistence of the returns from the Covered Interest Rate Parity (CIP) subject to bid/ask spread and transaction costs. Afterwards, two explanations for the existence of deviations from the CIP are presented. I find that the NZD and AUD strategies perform especially poorly. The returns are found to be independent from the measurable risk premiums applied. The disclosure requirements introduced in Jan. 2015 are shown to significantly increase the Cross-Currency Basis for the one-week maturities. Furthermore, there is a correlation between the Cross-Currency Basis and the foreign xIBOR, indicating that a supply and demand mismatch causes the forward rate prices to break from the CIP.

UddannelserCand.merc.aef Applied Economics and Finance, (Kandidatuddannelse) Afsluttende afhandling
SprogEngelsk
Udgivelsesdato2020
Antal sider47