Return, Trading Volume, and Market Depth in Currency Futures Markets

Cheng, Ai-ru; Cheung, Yin‐Wong

doi:10.2139/ssrn.1323684

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Covered Interest Deviations In the Presence Of Frictions1

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2008

2009

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“…The measured deviations within the no-arbitrage bands are therefore, consistent with equilibrium and with covered interest parity, and may be unit root processes. Further, when the supply of arbitrage capital is less than perfectly elastic, due either to quantitative controls, asymmetric information, or imperfect competition in markets, then profitable deviations may not be immediately arbitraged away but in rational markets, would eventually be arbitraged away (Cheng and Cheung, 2008;Fong, Valente and Fun, 2008).…”

Section: Covered Interest Deviations In the Presence Of Frictionsmentioning

confidence: 99%