Covered Interest Rate Parity in Emerging Markets

30 Pages Posted: 22 Jun 2011 Last revised: 2 Jul 2011

See all articles by Frank S. Skinner

Frank S. Skinner

Brunel University

Andrew Mason

University of Surrey - Surrey Business School

Date Written: June 22, 2011

Abstract

This paper finds that while covered interest rate parity holds for large and small triple A rated economies, it holds for emerging markets only for a three-month maturity. For a five-year horizon the size and frequency of violations lead to the conclusion that covered interest rate parity does not hold for longer maturities for Brazil, Chile, Russia and South Korea. Overall this paper finds that aspects of credit risk are the source of violations in CIRP in the long-term capital markets rather than transactions costs or the size of the economy.

Keywords: Covered Interest Rate Parity, CDS, Credit Risk

JEL Classification: E43, G12, G15, G24

Suggested Citation

Skinner, Frank S. and Mason, Andrew, Covered Interest Rate Parity in Emerging Markets (June 22, 2011). International Review of Financial Analysis, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1869974

Frank S. Skinner (Contact Author)

Brunel University ( email )

Kingston Lane
Uxbridge, Middlesex UB8 3PH
United Kingdom

Andrew Mason

University of Surrey - Surrey Business School ( email )

Guildford, Surrey GU2 5XH
United Kingdom
+44-1483-683093 (Phone)

HOME PAGE: http://www2.surrey.ac.uk/management/people/andrew_mason/

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