Uncovered Interest Parity in High Frequency
3 Dec 2024
13:00 -14:15
Times are shown in local time.
Open to: All
Chen-Tsao Lecture Theatre, Cambridge Judge Business School
Trumpington St
Cambridge
CB2 1AG
United Kingdom
Join our Finance seminar
Speaker: Professor Philippe Mueller, Warwick Business School
About the seminar topic
We study violations of uncovered interest parity (UIP) at daily and intraday frequencies, carefully accounting for settlement conventions. While we reject the expectations hypothesis (EH) during the intraday period, we cannot do so overnight. Equivalently, returns to the forward premium portfolio (a trading strategy that exploits violations of the EH) are overwhelmingly accrued during the intraday period. The same is true for returns to the traditional carry as well as the dollar carry strategy.
The positive carry returns over the sample period are almost exclusively earned during the day as high interest rate currencies appreciate against low interest rate currencies while excess returns overnight are virtually zero. On FOMC and macro announcement days, the forward premium and the dollar carry portfolios drop in value, while they generate positive returns on average on all other days. In contrast, the carry as well as the dollar portfolio exhibit the opposite pattern: They appreciate in value on announcement days value but depreciate on all other days on average. That is, while the strategies exhibit similar return patterns intraday vs. overnight, they behave very differently on announcement vs non-announcement days.
Read more about the Uncovered Interest Parity in High Frequency research paper.
Speaker bio
Philippe Mueller is a Professor of Finance at Warwick Business School. He holds a PhD in finance and economics from Columbia University. His research interests are in macro-finance, international finance, empirical asset pricing, and financial econometrics.
His current work includes studying factors that price the cross-section of stocks and bonds, intraday patterns in foreign exchange markets, corporate credit provision, central bank swap lines, and volatility in fixed income and currency markets. His research has been published in the Journal of Finance, the Review of Financial Studies, the Journal of Financial Economics, and the Review of Finance. Recently, the paper “Priced Risk in Corporate Bonds” (joint with Dickerson and Robotti) was awarded the Fama–DFA Prize for the best capital markets and asset pricing research paper published in the Journal of Financial Economics in 2023.
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