Download or read book Foreign Exchange Risk Premium written by Mr.Lorenzo Giorgianni and published by International Monetary Fund. This book was released on 1997-04-01 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper challenges the conventional view that foreign exchange risk premiums are small, not volatile, and unrelated to macroeconomic variables. For the Italian lira (1987-94), unconditional risk premiums—constructed using survey data to measure exchange rate expectations—are found to be sizable (relative to the dimension of the forward premium), highly volatile (relative to the variability of the forward bias), and predictable. Estimation of structural models of the risk premium suggests that anticipated fiscal contractions in Italy and lower uncertainty about the future path of fiscal policy are associated with a lower risk premium on lira-denominated assets.
Download or read book The Introduction of the Euro and the Currency Risk Premium written by Olasupo Olusi and published by . This book was released on 2006 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: Exchange rates arrangements aim at reducing uncertainty attached to currency fluctuations hence a reduction in systematic risks. This paper analyzes the behaviour of risk premiums in major equity markets, following the introduction of the euro. Using a multifactor asset pricing model, we find exchange rate risk premium in the largest eurozone markets (Germany and France) rose sharply after 1999, unlike in the quot;smallerquot; markets (Italy and the Netherlands). Market risk premium declined in the eurozone markets except Germany. It appears the euro resulted in systematic risk reduction in the smaller eurozone markets at the expense of their larger partners. This challenges an important rationale for the euro.
Download or read book Determinants of Currency Risk Premiums written by John A. Carlson and published by . This book was released on 1998 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book On Biases in the Measurement of Foreign Exchange Risk Premiums written by Geert Bekaert and published by . This book was released on 1993 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book U S Dollar Dynamics written by Mr.Ravi Balakrishnan and published by International Monetary Fund. This book was released on 2016-09-08 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the drivers of dynamics of major U.S. FX bilaterals. We first construct a novel measure of FX risk premiums using Consensus exchange rate forecasts. We then use VAR analysis to show that (i) risk premium shocks play a key role in driving dynamics of the major U.S. FX bilaterals; (ii) longer-term interest differentials also matter, especially for the Canadian $ and the Euro; (iii) oil price shocks play a particularly important role for the Canadian $ (an oil exporter); and (iv) risk appetite shocks (e.g., VIX shocks) generally lead to U.S. dollar appreciation. The importance of risk premium and longer-term interest differential shocks fit well with a simple theoretical model and are supported by recent event studies.
Download or read book Incomplete Consumption Risk Sharing and Currency Risk Premiums written by Sergei Sarkissian and published by . This book was released on 2015 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article studies the impact of imperfect consumption risk sharing across countries on the formation of time-varying risk premiums in the foreign exchange market and on their cross-sectional differences. These issues are addressed within the framework of the Constantinides and Duffie (1996) model applied to a multi-country world. The paper shows that the cross-country variance of consumption growth rates is counter-cyclical and that this feature of consumption data is mildly helpful for currency pricing. While the new model does not fully account for the forward premium anomaly, it is able to generate currency risk premiums at relatively low values of risk aversion and provide certain explanatory power for cross-sectional differences in currency returns.
Download or read book Currency Risk Premia in Global Stock Markets written by Shaun K. Roache and published by International Monetary Fund. This book was released on 2006-08 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: Large fundamental imbalances persist in the global economy, with potential exchange rate implications. This paper assesses whether exchange rate risk is priced across G-7 stock markets. Given the multitude of hedging instruments available, theory suggests that stock market investors should not be compensated for currency risk. However, data covering 33 industry portfolios across seven major stock markets suggest that not only is exchange rate risk priced in many markets, but that it is time-varying and sensitive to currency-specific shocks. With stock market investors typically exhibiting "home bias," this suggests that investors are using equity asset proxies to hedge the exchange rate risks to consumption.
Download or read book Currency Risk Premiums written by Mikhail Chernov and published by . This book was released on 2023-11-29 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Currency Risk Premiums: A Multi-Horizon Perspective reviews the literature on multi-horizon currency risk premiums. It shows how the multi-horizon implications arise from the classic present-value relationship. The authors further show how these implications manifest themselves in the interaction between bond and currency risk premiums. This link is strengthened by explicitly accounting for stochastic discount factors. Information about currency risk premiums at different horizons presents a wealth of new evidence and challenges for existing models.
Download or read book Determinants of Currency Risk Premiums written by John A. Carlson and published by . This book was released on 2006 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a theoretical model of exchange-rate determination intended to address the forward premium puzzle. It also explains the empirical observation that risk premiums depend on interest differentials. The model's closed-form solution indicates that currency risk premiums depend on two factors: interest differentials and the current deviation of the exchange rate from its long-run equilibrium. If speculators have an alternative to exchange-rate speculation, then there is no presumption that uncovered interest parity holds even approximately in long-run equilibrium. The model is consistent with existing evidence suggesting that forward premiums are negatively related to rationally expected future exchange rate changes. New empirical evidence is provided in support of the model.
Download or read book The Role of Currency Risk in Industry Cost of Capital written by Bill B. Francis and published by . This book was released on 2009 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we test the hypotheses that previous studies fail to find a significant role for currency risk in industry returns because of methodological shortcomings or because of hedging. Using a Fama-French three-factor model augmented with an exchange rate factor in which both the factor exposures and risk premiums are time varying, we find that 35 of 36 U.S. industries are significantly exposed to a broad currency index (containing the currencies of developed and developing economies). In sharp contrast, only 14 industries display significant time-invariant exchange rate exposure using ordinary least squares. More important, the sample means of the time-varying exposures are economically large, with 27 (75%) being greater than 0.10. This resolves the puzzle that previous research finds significant exposure at the aggregate stock market level, but fail to identify the firm or industry level as the source of this aggregate exposure. In addition, currency risk premium is an economically large component of the cost of equity, with 21 industries having a mean currency premium of over 100 basis points per year. Compared to an average cost of equity of 15% per year, the annualized (absolute) currency risk premium is 2.10% for the average industry and is substantially more for some industries. Moreover, 31 of the 36 industries have a mean absolute currency risk premium that is at least one-tenth of the industry's total risk premium. Contrary to the above, an index of the currencies of the developed countries substantially understates the economic importance of currency risk premium. Overall, we find strong support for the methodological, but not the hedging, hypothesis.
Download or read book Foreign Exchange Risk Premium Determinants written by Tigran Poghosyan and published by . This book was released on 2006 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Properties of foreign exchange risk premiums written by Lucio Sarno and published by . This book was released on 2011 with total page 85 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book A Study of Risk Premiums in the Foreign Exchange Market written by Bonghan Kim and published by . This book was released on 1994 with total page 238 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Properties of Foreign Exchange Risk Premiums written by Lucio Sarno and published by . This book was released on 2016 with total page 86 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Variance Risk Premiums in Currency Options written by and published by . This book was released on 2009 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Pricing Currency Risk written by Sergio L. Schmukler and published by . This book was released on 2002 with total page 88 pages. Available in PDF, EPUB and Kindle. Book excerpt: Hard pegs, such as currency boards, intend to reduce or even eliminate currency risk. This paper investigates the patterns and determinants of the currency risk premium in two currency boards -- Argentina and Hong Kong. Despite the presumed rigidity of currency boards, the currency premium is almost always positive and at times very large. Its term structure is usually upward sloping, but flattens out or even becomes inverted at times of turbulence. Currency premia differ across markets. The forward discount typically exceeds the currency premium derived from interbank rates, particularly during crisis times. The large magnitude of these cross-market differences can be the consequence of unexploited arbitrage opportunities, market segmentation, or other risks embedded in typical measures of currency risk. The premium and its term structure depend on domestic and global factors, related to devaluation expectations and risk perceptions.
Download or read book International Yield Differentials Do Not Equal Risk Premiums written by George M. von Furstenberg and published by . This book was released on 2003 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: International risk premiums on low-credibility currencies are routinely measured by yield differences with otherwise comparable instruments issued in a hard currency. Such measures, while adequate for any permanent component of country-specific risk, are incorrect when applied during periods of currency and banking crisis in emerging markets. The reason is that such crises typically generate large risk-adjusted real interest-rate differentials that may be compensated by future movements in the real exchange rate. If riskless rates can differ because only asset markets can adjust immediately to the new outlook created by a crisis, the risk premium can not be equated with observed international yield spreads. Instead, an intertemporal UIP model serves to estimate both permanent and temporary components of currency risk premiums. The usefulness of the results obtained with this model is demonstrated by showing that the measure of the surge in currency risk obtained for the tequila crisis bids fair to explain financial and economic declines that actually occurred.
