Abnormal profitability and foreign investment based on the investigation of covered interest parity

Bor-Yi Huang, Jer-Shiou Chiou and Pei-Shan Wu

Physica A: Statistical Mechanics and its Applications, 2007, vol. 384, issue 2, 475-484

Abstract: Most literature focuses on how foreign investment and the market returns are related. Instead, this study attempts to identify the origin of abnormal behavior by foreign investors, as well as the relationship among the error in covered interest parity (ECIP), foreign investment (INV), and stock returns (RS). This study finds that the behavior of ECIP can be accurately represented by the ARJI model, which is capable of describing sudden jumps in the economy. Consequently, CBP-ARJI thus provides an effective means of studying the interaction among underlying variables.

Keywords: CIP; Foreign investment; CBP-ARJI; Abnormal profitability (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:384:y:2007:i:2:p:475-484

DOI: 10.1016/j.physa.2007.05.048

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