International correlation risk

• 成果类型: Article
• 署名作者: Mueller, Philippe; Stathopoulos, Andreas; Vedolin, Andrea
• 署名单位: University of London; London School Economics & Political Science; University of Washington; University of Washington Seattle
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2016.09.012
• 发表日期: 2017
• 页码: 270-299
• 关键词: Correlation risk; Exchange rates; International finance

摘要

We show that the cross-sectional dispersion of conditional foreign exchange (FX) correlation is countercyclical and that currencies that perform badly (well) during periods of high dispersion yield high (low) average excess returns. We also find a negative cross-sectional association between average FX correlations and average option-implied FX correlation risk premiums. Our findings show that while investors in spot currency markets require a positive risk premium for exposure to high dispersion states, FX option prices are consistent with investors being compensated for the risk of low dispersion states. To address our empirical findings, we propose a no-arbitrage model that features unspanned FX correlation risk. (C) 2017 Elsevier B.V. All rights reserved.