A credit-based theory of the currency risk premium

• 成果类型: Article
• 署名作者: Della Corte, Pasquale; Jeanneret, Alexandre; Patelli, Ella D. S.
• 署名单位: Imperial College London; Imperial College London; Centre for Economic Policy Research - UK; University of New South Wales Sydney; University of British Columbia
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2023.06.002
• 发表日期: 2023
• 页码: 473-496
• 关键词: Exchange rate; predictability; Risk premium; Credit risk; sovereign default

摘要

This paper uncovers a novel component for exchange rate predictability based on the price difference between sovereign credit default swaps denominated in different currencies. This new forecasting variable - the credit-implied risk premium - captures the expected currency depreciation conditional on a severe but rare credit event. Using data for 16 Eu-rozone countries, we find that the credit-implied risk premium positively forecasts the dollar-euro exchange rate return at various horizons. Moreover, a currency strategy that exploits the informative content of our predictor generates substantial out-of-sample eco-nomic value against the naive random walk benchmark.& COPY; 2023 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY license ( http://creativecommons.org/licenses/by/4.0/ )