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Evidence of risk premiums in emerging market carry trade currencies

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  • Coelho dos Santos, Marcelo Bittencourt
  • Klotzle, Marcelo Cabus
  • Figueiredo Pinto, Antonio Carlos

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.

Suggested Citation

  • Coelho dos Santos, Marcelo Bittencourt & Klotzle, Marcelo Cabus & Figueiredo Pinto, Antonio Carlos, 2016. "Evidence of risk premiums in emerging market carry trade currencies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 44(C), pages 103-115.
    • Handle: RePEc:eee:intfin:v:44:y:2016:i:c:p:103-115
    DOI: 10.1016/j.intfin.2016.04.012
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    2. Byrne, Joseph P. & Ibrahim, Boulis Maher & Sakemoto, Ryuta, 2018. "Common information in carry trade risk factors," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 52(C), pages 37-47.
    3. Erdem, F. Pinar & Geyikci, Utku Bora, 2021. "Local, global and regional shocks indices in emerging exchange rate markets," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 98-113.
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    5. Kumar, Satish, 2019. "Does risk premium help uncover the uncovered interest parity failure?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 63(C).

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    More about this item

    Keywords

    Interest rate parity; Risk premium; Exchange rate; CGARCH-M; Emerging markets;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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