The UIP theorem has had very little empirical support over the past 25 years. Moreover, it has been shown that high-rate currencies have tended to appreciate and low-rate currencies to depreciate, the reverse of theory. The failure of UIP has been no secret to participants in currency markets, where the carry trade, which is essentially a bet against UIP, has become a very popular investment st...

The main idea behind this paper is that sterling has strong affinities with both the Deutsche mark (now euro) and dollar, reflecting their importance for UK external business, though they have been obscured by regime changes and temporary influences. In principle the D-mark should show comparable affinities, but in its case they have been eroded by the long process of monetary integration in Eu...

We employ a multivariate BEKK GARCH model which allows news to affect conditional volatility in an asymmetric manner. The asymmetric model outperforms the standard symmetric model, implying that efficient financial decision makers should not treat good and bad news as homogenous. We estimate the conditional variance and covariance of the Japanese yen, Swiss franc and British pound vis-à-vis the...