Equity tail risk and currency risk premiums

• 成果类型: Article
• 署名作者: Fan, Zhenzhen; Londono, Juan M.; Xiao, Xiao
• 署名单位: University of Manitoba; Federal Reserve System - USA; Federal Reserve System Board of Governors; University of Amsterdam
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2021.05.020
• 发表日期: 2022
• 页码: 484-503
• 关键词: Global tail risk; Option-implied equity tail risk; Currency returns; Carry trade; Currency momentum

摘要

We find that an option-based equity tail risk factor is priced in the cross section of currency returns; more exposed currencies offer a low risk premium because they hedge against equity tail risk. A portfolio that buys currencies with high equity tail beta and shorts those with low beta extracts the global component in the tail factor. The estimated price of risk of this novel global factor is consistently negative in currency carry and momentum portfolios, and in portfolios of other asset classes, suggesting that excess returns of these strategies can be partially understood as compensations for global tail risk. (c) 2021 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license ( http://creativecommons.org/licenses/by-nc-nd/4.0/ )