Does Incomplete Spanning in International Financial Markets Help to Explain Exchange Rates?

• 成果类型: Article
• 署名作者: Lustig, Hanno; Verdelhan, Adrien
• 署名单位: Stanford University; Massachusetts Institute of Technology (MIT)
• 刊物名称: AMERICAN ECONOMIC REVIEW
• ISSN/ISSBN: 0002-8282
• DOI: 10.1257/aer.20160409
• 发表日期: 2019
• 页码: 2208-2244
• 关键词: asset prices; long-run; Currency risk; consumption; models; premia

摘要

We assume that domestic (foreign) agents, when investing abroad, can only trade in the foreign (domestic) risk-free rates. In a preference-free environment, we derive the exchange rate volatility and risk premia in any such incomplete spanning model, as well as a measure of exchange rate cyclicality. We find that incomplete spanning lowers the volatility of exchange rate, increases the risk premia but only by creating exchange rate predictability, and does not affect the exchange rate cyclicality. (JEL E32, F31, F44, G15)