edoc

Why are Returns on Swiss Franc Asset so Low?

Kugler, Peter and Weder, Beatrice. (2005) Why are Returns on Swiss Franc Asset so Low? WWZ Discussion Papers, 2005 (08).

[img] PDF - Published Version
260Kb

Official URL: https://edoc.unibas.ch/61259/

Downloads: Statistics Overview

Abstract

As is well known, the uncovered interest rate parity fails in the short run but usually holds in the long run. This paper analyses the long and short run interest rate parity of 10 mayor OECD currencies and finds that there is a long run failure of the uncovered interest rate parity condition for the Swiss Franc. After correcting for exchange rate changes, mean returns on Swiss assets have been significantly lower than in other currencies, an anomaly not found in any other major currency. The long run return differential has been stable over the last 20 years, transitory structural breaks are only found in times of currency turmoil. We suggest that the return anomaly may be due to an insurance premium against very rare catastrophic events, such as a major war. Supporting evidence for this hypothesis comes from two empirical findings: First, we show that the return differential is negatively affected by large unexpected geo-political events. Second we examine historical data on interest rates differentials and show that the abnormally low level of Swiss returns arises after the first world war only.
Faculties and Departments:06 Faculty of Business and Economics
06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften
12 Special Collections > WWZ Publications > WWZ Discussion Papers and Working Papers
UniBasel Contributors:Kugler, Peter
Item Type:Working Paper
Publisher:WWZ, University of Basel
Number of Pages:19
Note:Publication type according to Uni Basel Research Database: Discussion paper / Internet publication
Language:English
Identification Number:
  • handle: RePEc:bsl:wpaper:2005/08
Last Modified:09 Mar 2018 10:53
Deposited On:08 Mar 2018 08:52

Repository Staff Only: item control page