We propose a simple identification scheme for the causes of the violations of uncovered interest parity. Our method uses the serial dependence patterns of excess returns as a criterion for judging performance of economic models. We show that a mean reverting component in excess returns,...

In this paper, we report evidence that mean currency returns are positive for both a domestic investor in a foreign currency and a foreign investor in a domestic currency. A shared currency gain creates a positive volatility factor for both. Volatility dominates other return determinants that...