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Global macro risks in currency excess returns

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  • Berg, Kimberly A.
  • Mark, Nelson C.

Abstract

We study the cross-sectional variation of carry-trade-generated currency excess returns in terms of their exposure to global macroeconomic fundamental risk. The risk factor is the cross-country high-minus-low conditional skewness of the unemployment rate gap. It gives a measure of global macroeconomic uncertainty and is robustly priced in currency excess returns. A widening of the high-minus-low skewness of the unemployment rate gap signifies increasing divergence, disparity, and inequality of economic performance across countries.

Suggested Citation

  • Berg, Kimberly A. & Mark, Nelson C., 2018. "Global macro risks in currency excess returns," Journal of Empirical Finance, Elsevier, vol. 45(C), pages 300-315.
  • Handle: RePEc:eee:empfin:v:45:y:2018:i:c:p:300-315
    DOI: 10.1016/j.jempfin.2017.11.011
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    Cited by:

    1. Colacito, Riccardo & Croce, Mariano Massimiliano & Liu, Yang & Shaliastovich, Ivan, 2018. "Volatility Risk Pass-Through," CEPR Discussion Papers 13325, C.E.P.R. Discussion Papers.
    2. repec:eee:jimfin:v:88:y:2018:i:c:p:212-227 is not listed on IDEAS
    3. Poulsen, Thomas & Lema, Rasmus, 2017. "Is the supply chain ready for the green transformation? The case of offshore wind logistics," Renewable and Sustainable Energy Reviews, Elsevier, vol. 73(C), pages 758-771.
    4. Ferrara, L. & Istrefi, K., 2016. "Impact des chocs d’incertitude sur l’économie mondiale – Synthèse de conférence," Bulletin de la Banque de France, Banque de France, issue 206, pages 61-68.
    5. repec:eee:jbfina:v:84:y:2017:i:c:p:88-106 is not listed on IDEAS
    6. repec:eee:jimfin:v:88:y:2018:i:c:p:242-259 is not listed on IDEAS

    More about this item

    Keywords

    Currency excess returns; Beta-risk; Carry trade; Global macro risk; Uncertainty;

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G1 - Financial Economics - - General Financial Markets

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