Covered Purchasing Power Parity, Ex-ante PPP and Risk Aversion
The standard expectations augmented theory of ex-ante Purchasing Power Parity which was first developed by Roll assumes that agents are risk neutral. A Covered Purchasing Power Condition is developed which holds for the general case of risk aversion. A risk augmented form of ex-ante PPP is then derived using a consumption-based asset pricing framework. This is tested for the post-Bretton woods period for the group of seven main industrial countries. The results suggest that risk aversion has a part to play in explaining deviations from PPP. Copyright Blackwell Publishers Ltd 1997.
Year of publication: |
1997-04
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Authors: | Moore, Michael J. |
Published in: |
Journal of Business Finance & Accounting. - Wiley Blackwell, ISSN 0306-686X. - Vol. 24.1997-04, 3, p. 397-412
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Publisher: |
Wiley Blackwell |
Saved in:
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