Abstract
This paper develops a perfectly general non-linear Uncovered Interest Parity, UIP, framework with foreign exchange (fx) market inefficiency. The latter means that there is always some “unexploited profit” which tends to generate a negative value for Fama's beta coefficient. However, as ID decays over time, this tends to generate a positive value for beta. The sign of beta is uncertain. It is shown that this result implies that the existence of fx market inefficiency is consistent with many puzzling facts about exchange rates, and that the model's implied values for beta are consistent with those obtained via actual data.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
More From: Journal of International Financial Markets, Institutions and Money
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.