Foreign currency returns and systematic risks
AbstractThe decomposition of the market return into its cash-flow and discount-rate news driven components reveals that excess returns on low forward discount currency portfolios load positively on "good" news about the stock market's discount rates while high forward discount currencies load negatively on this news. Average currency portfolio returns are hence explained by different sensitivities to discount-rate news. A two-beta version of the CAPM, distinguishing between cash-flow and discount-rate betas, is able to price both currency and stock portfolio returns at the same time. Finally, we find that the relation between stock market news and foreign currency returns varies across the two either discount-rate news or both discount-rate and cash-flow news driven stock market booms of the past two decades.
Download InfoIf 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.
Bibliographic InfoPaper provided by Swiss National Bank in its series Working Papers with number 2011-03.
Length: 39 pages
Date of creation: 2011
Date of revision:
Contact details of provider:
Postal: Börsenstrasse 15, P. O. Box, CH - 8022 Zürich
Phone: +41 44 631 31 11
Fax: +41 44 631 39 11
Web page: http://www.snb.ch/en/ifor/research/
More information through EDIRC
Currency returns; cash-flow news; discount-rate news; market return; UIP;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-04-09 (All new papers)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Victoria Galsband & Thomas Nitschka, 2013. "Currency excess returns and global downside market risk," Working Papers 2013-07, Swiss National Bank.
- Adrien Verdelhan, 2012. "The Share of Systematic Variation in Bilateral Exchange Rates," 2012 Meeting Papers 763, Society for Economic Dynamics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Enzo Rossi).
If references are entirely missing, you can add them using this form.