Exchange Rates and Sovereign Risk

• 成果类型: Article
• 署名作者: Della Corte, Pasquale; Sarno, Lucio; Schmeling, Maik; Wagner, Christian
• 署名单位: Imperial College London; University of Cambridge; Goethe University Frankfurt; Vienna University of Economics & Business
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2021.4115
• 发表日期: 2022
• 页码: 5591-5617
• 关键词: Exchange rates; Currency risk premium; CURRENCY OPTIONS; Sovereign risk; CDS spreads

摘要

An increase in a country's sovereign risk, as measured by credit default swap spreads, is accompanied by a contemporaneous depreciation of its currency and an increase of its volatility. The relation between currency excess returns and sovereign risk is mainly driven by default expectations (rather than distress risk premia) and exposure to global sovereign risk shocks and also emerges in a predictive setting for currency risk premia. We show that a sovereign risk factor is priced in the cross-section of currency returns and that it is not subsumed by the carry factor.