The trade imbalance network and currency returns☆

• 成果类型: Article
• 署名作者: Hou, Ai Jun; Sarno, Lucio; Ye, Xiaoxia
• 署名单位: Stockholm University; University of Cambridge; University of Cambridge; Centre for Economic Policy Research - UK; University of Nottingham
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2025.104112
• 发表日期: 2025
• 关键词: Trade imbalance network; Currency premia; Carry trade; Network centrality

摘要

We introduce in the theory of Gabaix and Maggiori (2015) a network structure to capture the complexity of the balance sheets of financial intermediaries, using the Leontief inverse-based centrality. We use this framework in a multi-country world with imperfect financial markets to study how currency risk premia are connected to financiers' risk bearing capacity. Guided by the theory, we construct a Centrality Based Characteristic (CBC), based on the centrality of the trade imbalance network and variance-covariance matrix of currency returns. Sorting currencies on CBC generates a high Sharpe ratio, and the resulting excess returns reflect a novel source of predictability.