| Summary: | 碩士 === 淡江大學 === 財務金融學系碩士在職專班 === 95 === In the past, there had been considerable interest in the investigations of whether the covered interest rate parity (CIP) holds or not. The CIP in the macroeconomic level is quite important because it implies that the interest rate, spot and forward exchange rates are related in a particular way. Indeed, their relations affect the capital flow in financial markets significantly. The purpose of this paper is to explore the relations between the permanent and transitory components of deviation from the CIP and stock returns. We apply the ARJI-Trend model which combines component model, proposed by Engle and Lee (1993), and ARJI model, proposed by Chan and Maheu (2002), to capture the daily data of the stock markets in many countries which are separated into developed and developing countries.
The result shows that the CIP in our samples is failure to hold because the central banks of each country may try to intervene their short term interest rate and exchange rate levels. Moreover, we found not only the conditional variance and jump frequency are time varying but also the existence of both permanent and transitory components of the conditional variance in the whole sample period. In the meantime, the shock of the permanent component of conditional variance is larger than the temporary component in Taiwan and England stock market.
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