Covered Interest Rate Parity
Master thesis
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https://hdl.handle.net/10642/2311Utgivelsesdato
2014Metadata
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Sammendrag
The idea of covered interest rate parity (CIP) states that simultaneous purchase
and sale of two currencies should not result in profit. This parity condition is
examined using error correction model (ECM), descriptive analysis of profitable
deviations and impulse response functions from the vector error correction model
(VECM). This study on average finds support for the parity condition. However,
there is also evidence for some rare but large deviations. Majority of the profitable
deviations are small in size. Results for persistence of the profitable deviations are
mixed. These results suggests that there is not sufficient evidence for either
accepting or rejecting the CIP and efficiency of the market. Thus, this paper is
inconclusive regarding the validity of CIP and efficiency of the market.
Beskrivelse
Master i økonomi og administrasjon