The Uncovered Interest Parity and Sovereign CDS Premiums-the case of Latin America countries

  • 楊 子依

Student thesis: Master's Thesis

Abstract

Carry trade strategy is that an investor sells a relative low-yield currency and buy a high-yield currency in different countries Often in the boom period this strategy creates positive excess returns whereas it generates losses in the crisis period At the first we show the sovereign credit default swap (CDS) premiums are negative significantly to the excess returns in Argentina Brazil Chile Colombia and Mexico from September 2008 to September 2016 which meets our hypothesis that default risk may increase the carry-trade losses during the crises Also relying on the threshold regression we show that the sovereign CDS premiums worsen the losses as before Secondly we run the “Fama regression” linking the exchange-rate change to the interest-rate differential in linear and nonlinear regressions Then we introduce the default risk and global factors into these equations step by step The evidences have pointed out that the coefficients of the sovereign CDS premium are positive significantly to explain the exchange-rate change as well as the coefficients of interest rate differential are close to one
Date of Award2018 Jan 25
Original languageEnglish
SupervisorTse-Shih Wang (Supervisor)

Cite this

'