1.11. Risk premium concentration and effects of the exchange rate regimes.

Autores: Muñoz Mendoza, J,. Araya Gómez, I.

 

Palabras Clave: Exchange Returns, Volatility, Risk Premium, Efficiency, Bias.

 

This paper analyzes the economic concentration of the risk premium and its relationship with the exchange regime among these types of economies, which represents a subject matter that has not been reviewed by the international literature.

For this we use dynamic panel data regressions and the conditions of Uncovered Interest Parity (UIP) and Covered Interest Parity (CIP) as the cornerstone of this analysis.

The results obtained from this research indicate that despite the risk Premium does not correct both the UIP deviations and CIP deviations, it mainly concentrates on the emerging economies. Such effect can be perceived in a time-variable risk premium, which impulses exchange appreciations, but it is compensated by a minor bias of the differential of interest rates and forward premium. Finally, the flexibility of exchange regimes in the developed economies lessens the risk premium, while rigidity and/or exchange interventions emphasize it in emerging economies.