 Covered interest parity and arbitrage paradox in emerging markets: Evidence from the Korean marketSangwon Suh and Young Ju Kim Pacific-Basin Finance Journal, 2016, vol. 38, issue C, 161-176 Abstract: While emerging forward exchange markets (EMs) have been rapidly developed, market efficiency has rarely been examined for EMs. To properly test the market efficiency for EMs, we set up a simple model to account for EM-specific realistic features. Based on the new model, we develop a modified covered interest parity (CIP) condition, which features multiple neutral bands associated with both transaction costs and differential borrowing costs. In addition, we apply the notion of ‘arbitrage paradox’ to test market efficiency. In particular, we focus not only on the violation event of the (modified) CIP condition but also on the persistence of arbitrage opportunities. We then apply this methodology to the Korean forward exchange market and provide empirical results for the Korean market, which can also be useful for analyzing other EMs. Keywords: Covered interest parity; Arbitrage paradox; Emerging markets; Market efficiency (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:38:y:2016:i:c:p:161-176 DOI: 10.1016/j.pacfin.2016.04.003 Access Statistics for this article Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee More articles in Pacific-Basin Finance Journal from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.