Economics at your fingertips  

Transactions Costs and Covered Interest Arbitrage: Theory and Evidence

Kevin Clinton

Journal of Political Economy, 1988, vol. 96, issue 2, pages 358-70

Abstract: The extent to which deviations from covered interest parity can be attributed to transactions costs has been exa ggerated in the economic literature because the swap market in foreig n exchange has been ignored. It is shown that such deviations should be no greater than the lowest of the transactions costs in one of thr ee markets: the swap market or either of the two relevant securities markets. This reconciles the theory with the data, which show spreads of no more than a few basis points. However, the empirical results h ave no direct bearing on the conventional market efficiency hypothesi s. Copyright 1988 by University of Chicago Press.

Date: 1988
References: Add references at CitEc
Citations View citations in EconPapers (49) Track citations by RSS feed

Downloads: (external link) full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See for details.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Journal of Political Economy is currently edited by April

More articles in Journal of Political Economy from University of Chicago Press
Series data maintained by Journals Division ().

Page updated 2016-11-15
Handle: RePEc:ucp:jpolec:v:96:y:1988:i:2:p:358-70