Common Risk Factors in Currency Markets

• 成果类型: Article
• 署名作者: Lustig, Hanno; Roussanov, Nikolai; Verdelhan, Adrien
• 署名单位: National Bureau of Economic Research; University of Pennsylvania
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhr068
• 发表日期: 2011
• 页码: 3731
• 关键词: INTEREST-RATE PARITY; exchange-rates; term structure; PREMIUM PUZZLE; cross-section; arbitrage; returns; equity; heteroskedasticity; equilibrium

摘要

We identify a slope factor in exchange rates. High interest rate currencies load more on this slope factor than low interest rate currencies. This factor accounts for most of the cross-sectional variation in average excess returns between high and low interest rate currencies. A standard, no-arbitrage model of interest rates with two factors-a country-specific factor and a global factor-can replicate these findings, provided there is sufficient heterogeneity in exposure to global or common innovations. We show that our slope factor identifies these common shocks, and we provide empirical evidence that it is related to changes in global equity market volatility. By investing in high interest rate currencies and borrowing in low interest rate currencies, U.S. investors load up on global risk.