| Summary: | 碩士 === 國立高雄第一科技大學 === 金融營運所 === 95 === This study investigates the existence of time-varying risk premia in deviations from uncovered interest parity based on the conditional beta capital asset pricing model. The analysis is conducted using a data set of four Asian currencies, and a world equity index in order to approximate the benchmark portfolio. The sample covers the period from January 17, 1992 through January 5, 2007 (782 observations). The conditional covariance matrix of excess returns is modeled as a bivariate dynamic conditional correlation GARCH process. Estimation results suggest:
A positive correlation between risk premia in stock market and risk premia in foreign exchange markets and there is a evidence of time-varying risk premia. Moreover, there is negative correlation between variance of excess return in stock market and risk premia in foreign exchange markets.
For all currencies considered, estimated conditional betas are positive but less than unity. This result indicates that expected excess returns in the foreign exchange market are less volatile than expected excess returns in the stock market and when excess return in the stock market are expected to increase, the dollar is expected to depreciate. This correlation pattern suggests that nominal dollar positions could be used as a diversification strategy in order to reduce the standard deviation of international equity portfolios.
The result also supports that we can get time-varying correlation. It’s the contribution of the DCC model.
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