Transactions Costs and Covered Interest Arbitrage: Theory and Evidence
Journal of Political Economy, 1988, vol. 96, issue 2, pages 358-70
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.
References: Add references at CitEc
Citations View citations in EconPapers (49) Track citations by RSS feed
Downloads: (external link)
http://dx.doi.org/10.1086/261540 full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:ucp:jpolec:v:96:y:1988:i:2:p:358-70
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 ().