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Journal of Economic Integration 2005 December;20(4) :727-745.
DOI: https://doi.org/10.11130/jei.2005.20.4.727
The Elasticity of Substitution across Maturities in International Capital Markets: A Simple Test
Konstantinos Drakos 
University of Patras
Copyright ©2005 Journal of Economic Integration
ABSTRACT

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.

JEL Classifications: C32, E43, F3, G15

Keywords: Elasticity of Substitution | Risk Premium | Expectations Hypothesis | Term Structure
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