A Three-Variable Benchmark for Post-GFC Covered Interest Parity Deviations
General Finance
2026-05-26 v3
Abstract
This paper proposes a public daily-frequency benchmark for post-GFC government-bond CIP deviations. Although CIP deviations are observed daily, the literature lacks a canonical benchmark for daily regressions comparable to standard factor models in asset pricing. Using G10 plus KRW currency-tenor panels, I show that three lagged public state variables-NFCI, the nominal broad U.S. dollar index, and the Treasury 10-year minus 2-year slope-deliver strong in-sample and leave-one-year-out performance. Cointegration, quarter-end, and aggregation-difference diagnostics suggest that the benchmark captures a persistent background component rather than short-maturity quarter-end spikes or spurious level correlation.
Cite
@article{arxiv.2605.20137,
title = {A Three-Variable Benchmark for Post-GFC Covered Interest Parity Deviations},
author = {Useong Shin},
journal= {arXiv preprint arXiv:2605.20137},
year = {2026}
}