• Rana Imroze Palwishah
  • Muhammad Kashif
Keywords: Forward Premium Puzzle, Uncovered Interest Rate Parity, Thematic Analysis, Covered Interest Rate Parity, Risk Premium


Uncovered interest rate parity (UIP), is one of the crucial relations in macroeconomics and international finance, widely used in the model’s construction and their analytical work. However , empirical regularities in UIP referred to as “Forward Premium Puzzle”, has posed a significant challenge to open-economy models. Thus, the purpose of the study is to identify the possible explanation of the forward premium puzzle. The research has identified five distinct and coherent themes (solutions) using thematic analysis of literature review, namely, risk premium, monetary policy, rational learning and peso-problem, market inefficiency, and lastly, covered interest rate parity. The researcher can use these thematic classifications to understand the operations of the global financial market. Similarly, the identified solutions can help investors in the assessment of their investment strategies such as the risk premium implies returns obtained at the expense of assuming high risk. Thus, investors should question whether average returns received from an investment are above normal on a risk-adjusted basis.

Author Biographies

Rana Imroze Palwishah
Rana imroze Palwishah is a Ph.D. Scholar and Lecturer at Shaheed Zulfikar Ali Bhutto Institute of Science and Technology. Her research interest is in the field of Finance. Her email address is rana_imroze@hotmail.com
Muhammad Kashif
Muhammad kashif is an Associate Professor, Head of the Department of Management Science, Editor, and in charge publication of research journals at Shaheed Zulfikar Ali Bhutto Institute of Science and Technology. His research interest is in asset pricing and Financial Econometrics. His email address is Muhammad.kashif@szabist.edu.pk


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