Advanced Search
MyIDEAS: Login to save this article or follow this journal

Random risk aversion and the cost of eliminating the foreign exchange risk of the Euro

Contents:

Author Info

  • Samih A Azar

    ()
    (Haigazian University)

Registered author(s):

    Abstract

    This paper answers the following questions. If the Euro foreign exchange risk is given, what is the cost of eliminating such a risk? How does risk aversion affect this cost? What is the relation between the insurance premium on the Euro and this cost? Is it possible to find out the level of risk aversion by looking upon actual risk-free yields? If risk aversion is random, how do risk-free yields move with the return on the Euro currency? Economists usually take for granted that preferences are stable. By contrast, business news networks mention frequently changing risk appetite, or changing investor sentiment, in order to explain market behavior. This paper shows that it is worthwhile to presume that risk aversion is random, because such randomness provides direct answers to the questions raised above.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I1-P14.pdf
    Download Restriction: no

    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 30 (2010)
    Issue (Month): 1 ()
    Pages: 157-168

    as in new window
    Handle: RePEc:ebl:ecbull:eb-09-00698

    Contact details of provider:

    Related research

    Keywords: The Euro; foreign exchange risk; expected utility; cost of risk; risk aversion; risk compensation; insurance premium; risk-free yields; Monte Carlo simulations; bootstrap sampling; EU financial markets;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, Econometric Society, vol. 62(6), pages 1383-1414, November.
    2. Lars Ljungqvist & Thomas J. Sargent, 2004. "Recursive Macroeconomic Theory, 2nd Edition," MIT Press Books, The MIT Press, The MIT Press, edition 2, volume 1, number 026212274x, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-09-00698. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John P. Conley).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.