Interconnected Deviations from Covered Interest Parity

Daniel Felix Ahelegbey and Oyakhilome Ibhagui

No 191, DEM Working Papers Series from University of Pavia, Department of Economics and Management

Abstract: We investigate the dynamic interconnectedness among the major world cross-currency basis swap spreads during tranquil and turbulent times. We examine whether movements in the bases are merely anecdotal or provide evidence of contagion, the most central basis for spillover propagation, and implications for market participants. The result shows a high degree of interconnectedness among the bases in crisis periods with mark-to-market losses for existing exposures and large arbitrage opportunities for investors seeking new positions. We find evidence that spillovers in the bases propagate from the Euro, the Swiss franc, and the Danish krone to other bases.

Keywords: Covered Interest Parity; Cross-currency Basis; Currency Swaps; Dollar Funding; Financial Crisis; Interconnectedness; VAR Model. (search for similar items in EconPapers)
JEL-codes: C11 C32 F31 G01 G15 (search for similar items in EconPapers)
Pages: 23
Date: 2020-09
New Economics Papers: this item is included in nep-mac, nep-mon and nep-net
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dem-web.unipv.it/web/docs/dipeco/quad/ps/RePEc/pav/demwpp/DEMWP0191.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pav:demwpp:demwp0191

Access Statistics for this paper

More papers in DEM Working Papers Series from University of Pavia, Department of Economics and Management Contact information at EDIRC.
Bibliographic data for series maintained by Alice Albonico ( this e-mail address is bad, please contact ).