Insured uncovered interest parity

Yiuman Tse and John K. Wald

Finance Research Letters, 2013, vol. 10, issue 4, 175-183

Abstract: The current literature suggests that uncovered interest parity (UIP) does not hold because of differences in risk in holding different currency denominated debt. We test whether this risk is related to sovereign credit risk in government bonds. We consider an insured uncovered interest parity relationship – that is, one where debt is insured with credit default swap (CDS) contracts. CDS rates help explain the UIP puzzle but have no predictive power for carry trade returns and currency movements.

Keywords: Uncovered interest parity; Carry trade; CDS (search for similar items in EconPapers)
JEL-codes: F31 G14 G15 G17 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:10:y:2013:i:4:p:175-183

DOI: 10.1016/j.frl.2013.06.004

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