The Quanto Theory of Exchange Rates

• 成果类型: Article
• 署名作者: Kremens, Lukas; Martin, Ian
• 署名单位: University of London; London School Economics & Political Science
• 刊物名称: AMERICAN ECONOMIC REVIEW
• ISSN/ISSBN: 0002-8282
• DOI: 10.1257/aer.20180019
• 发表日期: 2019
• 页码: 810-843
• 关键词: foreign-currency risk; HOME BIAS; cross-section; Carry trade; premia; models; MARKETS; options; explain

摘要

We present a new identity that relates expected exchange rate appreciation to a risk-neutral covariance term, and use it to motivate a currency forecasting variable based on the prices of quanto index contracts. We show via panel regressions that the quanto forecast variable is an economically and statistically significant predictor of currency appreciation and of excess returns on currency trades. Out of sample, the quanto variable outperforms predictions based on uncovered interest parity, on purchasing power parity, and on a random walk as a forecaster of differential (dollar-neutral) currency appreciation.