The Elasticity of Substitution across Maturities in International Capital Markets: A Simple Test

Konstantinos Drakos

Journal of Economic Integration, 2005, vol. 20, 727-745

Abstract:

The paper tests the hypothesis of a maturity-independent foreign exchange risk premium or equivalently of a constant elasticity of substitution of international assets across the maturity spectrum. The empirical findings indicate that elasticity of substitution is indeed a function of maturity. In addition, the premia are found to be a monotonic function of the maturity distance between assets.

Keywords: Elasticity of Substitution; Risk Premium; Expectations Hypothesis; Term Structure (search for similar items in EconPapers)
JEL-codes: C32 E43 F30 G15 (search for similar items in EconPapers)
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0338

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