Parameterizing Currency Risk in the EMS: The Irish Pound and Spanish Peseta against the German Mark

Paul McNelis () and Guay C. Lim ()

International Finance from EconWPA

Abstract: This paper compares alternative estimates of systemic time-varying excess returns for the Irish pound and the Spanish peseta, against the German mark, since 1985. We make use of progressively more complex models, going from the GARCH in Mean specification, to the International Capital Asset Pricing model (ICAPM) with a time-varying "beta", to a general equilibrium Constant Relative Risk Aversion model (CRRA), with trivariate GARCH-M estimation. The results show significant relative risk aversion as well as significant volatility effects on redictable excess returns. The time-varying "beta" has also declined in the past five years for both Ireland and Spain.

JEL-codes: F31 F32 F34 F36 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk and nep-ifn
Date: 1998-05-05
Note: Type of Document - Tex; prepared on IBM PC; to print on HP;
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpif:9805001

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