The Elasticity of Substitution across Maturities in International Capital Markets: A Simple Test

The Elasticity of Substitution across Maturities in International Capital Markets: A Simple Test

The paper tests the hypothesis of a maturity-independent foreign exchange risk premium or equivalently of a constant elasticity of substitution of international assets across the maturity spectrum. The empirical findings indicate that elasticity of substitution is indeed a function of maturity. In addition, the premia are found to be a monotonic function of the maturity distance between assets.

Ⅰ. Introduction

Ⅱ. The Term Structure of Deviations from the UIRP

Ⅲ. Data

Ⅳ. Empirical Results

Ⅴ. Conclusion

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