Business cycles and currency returns

• 成果类型: Article
• 署名作者: Colacito, Riccardo; Riddiough, Steven J.; Sarno, Lucio
• 署名单位: University of North Carolina; University of North Carolina Chapel Hill; National Bureau of Economic Research; University of Melbourne; University of Cambridge; Centre for Economic Policy Research - UK
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2020.04.005
• 发表日期: 2020
• 关键词: Exchange rates; Currency risk premium; business cycles; Long-run risk

摘要

We find a strong link between currency excess returns and the relative strength of the business cycle. Buying currencies of strong economies and selling currencies of weak economies generates high returns both in the cross-section and time series of countries. These returns stem primarily from spot exchange rate predictability, are uncorrelated with common currency investment strategies, and cannot be understood using traditional currency risk factors in either unconditional or conditional asset pricing tests. We also show that a business cycle factor implied by our results is priced in a broad currency cross section. (C) 2020 Published by Elsevier B.V.