Abstract
This paper formally implements time-varying risk price models for currency returns. Focusing upon time variation in risk prices, the paper explores four currency risk factors. In addition to dollar and carry factors, we employ momentum and value factors which are widely used by currency investors. We find time variation in risk prices for the dollar factor is associated with the U.S. business cycle, with notable increases at the end of economic downturns. Constant beta models moreover have smaller pricing errors across all currency portfolios, which is in contrast to the stock and bond markets.
Original language | English |
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Article number | 102636 |
Journal | Journal of International Money and Finance |
Volume | 124 |
Early online date | 15 Mar 2022 |
DOIs | |
Publication status | Published - Jun 2022 |
Keywords
- Currency Carry Trades, Risk Price, Time-varying Betas, Factor Model, Nonparametric Model
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- General Business,Management and Accounting