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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.

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  • 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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    9. Fernandez, Julian, 2020. "Exchange Rate Uncertainty and the Interest Rate Parity," MPRA Paper 116010, University Library of Munich, Germany, revised 2022.
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    More about this item

    Keywords

    Currency excess returns; Beta-risk; Carry trade; Global macro risk; Uncertainty;
    All these keywords.

    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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