Uncovered Interest Rate Arbitrage: A Test of the Efficiency of Costa Rica Deposit Accounts

International Journal of Finance, Vol. 18, No. 1, pp. 3861-3887, 2006

Posted: 29 Aug 2009 Last revised: 4 Mar 2010

See all articles by Terrance Jalbert

Terrance Jalbert

University of Hawaii - Department of Business Administration

Jonathan D. Stewart

Abilene Christian University

Mercedes Jalbert

The Institute for Business and Finance Research

Date Written: 2006

Abstract

The efficiency of the Costa Rica certificate of deposit (CD) market is examined in this paper. The rate spread between US dollar denominated CDs in US. and Costa Rica banks are examined. Colon denominated rates offered by Costa Rican banks are compared to dollar denominated rates offered by U. S. and Costa Rica banks. Contrary to expectations, Costa Rican banks are found to commonly pay lower rates than U.S. banks on dollar denominated CDs. Traditional tests and a new test based on the Wald-Wolfowitz runs test are conducted to detect uncovered interest rate arbitrage opportunities.

Keywords: Costa Rica, Interest Rates, Uncovered Interest Rate Arbitrage

JEL Classification: G30

Suggested Citation

Jalbert, Terrance and Stewart, Jonathan D. and Jalbert, Mercedes, Uncovered Interest Rate Arbitrage: A Test of the Efficiency of Costa Rica Deposit Accounts (2006). International Journal of Finance, Vol. 18, No. 1, pp. 3861-3887, 2006, Available at SSRN: https://ssrn.com/abstract=1463932

Terrance Jalbert (Contact Author)

University of Hawaii - Department of Business Administration ( email )

808-974-7456 (Phone)

Jonathan D. Stewart

Abilene Christian University ( email )

Abilene, TX 79699
United States

Mercedes Jalbert

The Institute for Business and Finance Research ( email )

P.O. Box 5569
Hilo, HI 96720
United States

HOME PAGE: http://www.theIBFR.com

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