Pricing Currency Risks

• 成果类型: Article
• 署名作者: Chernov, Mikhail; Dahlquist, Magnus; Lochstoer, Lars
• 署名单位: Stockholm School of Economics; Stockholm School of Economics
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.13190
• 发表日期: 2023
• 页码: 693-730
• 关键词: cross-section; conditioning information; term structure; Carry trade; foreign-exchange; momentum; models; EFFICIENCY; premium; predictability

摘要

The currency market features a small cross-section, and conditional expected returns can be characterized by few signals: interest differential, trend, and mean reversion. We exploit these properties to construct the ex ante mean-variance efficient portfolio of individual currencies. The portfolio is updated in real time and prices all prominent currency trading strategies, conditionally and unconditionally. The fraction of risk in these assets that does not affect their risk premiums is at least 85%. Extant explanations of carry strategies based on intermediary capital or global volatility are related to these unpriced components, while consumption growth is related to the priced component of returns.