Properties of Foreign Exchange Risk Premiums

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Properties of Foreign Exchange Risk Premiums

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dc.contributor.author Sarno, Lucio
dc.contributor.author Schneider, Poul
dc.contributor.author Wagner, Christian
dc.date.accessioned 2015-01-26T09:42:52Z
dc.date.available 2016-09-01T01:00:03Z
dc.date.issued 2015-01-26
dc.identifier.uri http://hdl.handle.net/10398/9098
dc.description.abstract We study the properties of foreign exchange risk premiums that can explain the forward bias puzzle, de¯ned as the tendency of high-interest rate currencies to ap- preciate rather than depreciate. These risk premiums arise endogenously from the no-arbitrage condition relating the term structure of interest rates and exchange rates. Estimating a±ne (multi-currency) term structure models reveals a noticeable tradeo® between matching depreciation rates and accuracy in pricing bonds. Risk premiums implied by our global a±ne model generate unbiased predictions for cur- rency excess returns and are closely related to global risk aversion, the business cycle, and traditional exchange rate fundamentals. en_US
dc.format.extent 86 en_US
dc.language eng en_US
dc.subject.other Term structure en_US
dc.subject.other Exchange rates en_US
dc.subject.other Forward bias en_US
dc.subject.other Predictability en_US
dc.title Properties of Foreign Exchange Risk Premiums en_US
dc.type art en_US
dc.contributor.corporation Copenhagen Business School. CBS en_US
dc.contributor.department Institut for Finansiering en_US
dc.contributor.departmentshort FI en_US
dc.contributor.departmentuk Department of Finance en_US
dc.contributor.departmentukshort FI en_US
dc.description.notes NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Financial Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Financial Economics, VOL105, ISSUE2, August 2012. DOI:10.1016/j.jfineco.2012.01.005 en_US
dc.publisher.year 2011 en_US
dc.embargo.terms 2016-09-01


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