Evidence of risk premiums in emerging market carry trade currencies

Marcelo Bittencourt Coelho dos Santos, Marcelo Klotzle and Antonio Carlos Figueiredo Pinto

Journal of International Financial Markets, Institutions and Money, 2016, vol. 44, issue C, 103-115

Abstract: This paper studies the evidence of risk premiums in emerging market carry trade currencies. We verified evidence of a forward bias puzzle and the presence of risk premium for all currencies. Furthermore, unanticipated shocks are of greater influence than fundamental variables in explaining long-term (permanent) risk-premium volatility components. On the other hand, in moments of global market uncertainty related to speculative pressures, the short-term (transitory) risk-premium volatility component increases.

Keywords: Interest rate parity; Risk premium; Exchange rate; CGARCH-M; Emerging markets (search for similar items in EconPapers)
JEL-codes: F30 F31 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:44:y:2016:i:c:p:103-115

DOI: 10.1016/j.intfin.2016.04.012

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