Intertemporal Risk-Return Trade-off in Foreign Exchange Rates
AbstractWe investigate the intertemporal risk-return trade-off of foreign ex- change (FX) rates for ten currencies quoted against the USD. For each currency, we use three risk measures simultaneously that pertain to that currency; its re- alized volatility, its realized skewness, and its value-at-risk. We apply monthly FX excess returns and monthly FX risk measures calculated from daily ob- servations. We find that there is a positive and signi?cant contemporaneous risk-return trade-off for most currencies. There is no evidence of noncontem- poraneous risk-return trade-off. The risk-return trade-off changes during the recent financial crisis in that it becomes nonexistent for several currencies and negative for others.
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Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2010-20.
Date of creation: 05 May 2010
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Foreign exchange rates; Risk-return trade-off; Realized volatility; Realized skewness; Value-at-risk; Financial crisis;
Other versions of this item:
- Charlotte, Christiansen, 2011. "Intertemporal risk-return trade-off in foreign exchange rates," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(4), pages 535-549, October.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- G01 - Financial Economics - - General - - - Financial Crises
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-22 (All new papers)
- NEP-IFN-2010-05-22 (International Finance)
- NEP-RMG-2010-05-22 (Risk Management)
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