Starjournal Quotation Sarno, Lucio, Schneider, Paul, Wagner, Christian. 2012. Properties of Foreign Exchange Risk Premiums. Journal of Financial Economics. 105 (2), 279-310.


RIS


BibTeX

Abstract

We study the properties of foreign exchange risk premiums that can explain the forward bias puzzle, defined as the tendency of high-interest rate currencies to appreciate rather than depreciate. These risk premiums arise endogenously from the no-arbitrage condition relating the term structure of interest rates and exchange rates. Estimating affine (multi-currency) term structure models reveals a noticeable tradeoff between matching depreciation rates and accuracy in pricing bonds. Risk premiums implied by our global affine model generate unbiased predictions for currency excess returns and are closely related to global risk aversion, the business cycle, and traditional exchange rate fundamentals.

Tags

Press 'enter' for creating the tag

Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Journal of Financial Economics
Citation Index SSCI
WU Journalrating 2009 A+
Starjournal Y
Language English
Title Properties of Foreign Exchange Risk Premiums
Volume 105
Number 2
Year 2012
Page from 279
Page to 310
Reviewed? Y
DOI http://dx.doi.org/10.1016/j.jfineco.2012.01.005
Open Access N

Associations

People
Wagner, Christian (Details)
External
Sarno, Lucio (Cass Business School, City University London, United Kingdom)
Schneider, Paul (Warwick Business School, University of Warwick, United Kingdom)
Organization
Institute for Finance, Banking and Insurance IN (Details)
Google Scholar: Search