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Ex ante Real Returns in Forward Market Speculation in the Inter-War Period: Evidence and Prediction

In: New Trends in Macroeconomics

Author

Listed:
  • Ivan Paya

    (University of Alicante)

  • David A. Peel

    (Lancaster University Management School)

Abstract

Summary The Keynes-Einzig conjecture states that discrepancies between interest parities and forward rates in the interwar period did not cause deliberate transfers through interest arbitrage on a large scale unless and until the profit on the operation was at least 1/2 percent per anum. We further examine this conjecture by employing monthly data for six currencies against the US Dollar for the period 1921-1936. In particular, we analyse the ex ante real returns to uncovered forward speculation in the interwar period. We find that excess returns were predictable and that deviations from covered interest parity (CIP) were large and systematic. Evidence of nonlinear adjustment of CIP is also provided.

Suggested Citation

  • Ivan Paya & David A. Peel, 2005. "Ex ante Real Returns in Forward Market Speculation in the Inter-War Period: Evidence and Prediction," Springer Books, in: Claude Diebolt & Catherine Kyrtsou (ed.), New Trends in Macroeconomics, pages 125-145, Springer.
    • Handle: RePEc:spr:sprchp:978-3-540-28556-4_7
    DOI: 10.1007/3-540-28556-3_7
    as

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