NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Alexander Tepper

Columbia University
Graduate School of Architecture,
Planning and Preservation
1172 Amsterdam Ave
New York, NY 10027

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NBER Working Papers and Publications

February 2017Deviations from Covered Interest Rate Parity
with Wenxin Du, Adrien Verdelhan: w23170
We find that deviations from the covered interest rate parity condition (CIP) imply large, persistent, and systematic arbitrage opportunities in one of the largest asset markets in the world. Contrary to the common view, these deviations for major currencies are not explained away by credit risk or transaction costs. They are particularly strong for forward contracts that appear on the banks' balance sheets at the end of the quarter, pointing to a causal effect of banking regulation on asset prices. The CIP deviations also appear significantly correlated with other fixed-income spreads and with nominal interest rates.

Published: WENXIN DU & ALEXANDER TEPPER & ADRIEN VERDELHAN, 2018. "Deviations from Covered Interest Rate Parity," The Journal of Finance, vol 73(3), pages 915-957. citation courtesy of

 
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