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International Asset Excess Returns and Multivariate Conditional Volatilities

  • Thomas Chiang

    ()

  • Sheng-Yung Yang

    ()

This paper constructs a multivariate model in relating multi-asset excess returns to their conditional variances. Applying weekly data to investigate the foreign-exchange risk premium, the evidence from a multivariate GARCH model shows that the foreign-exchange excess returns are significantly correlated with economic fundamentals such as the real interest-rate differential, long-short interest-rate spread differential, and equity-premium differential. The evidence also suggests that foreign-exchange excess returns are not independent of the conditional variances of these fundamental variables, supporting the time-varying risk-premium hypothesis. Copyright Springer Science + Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s11156-005-6868-2
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Article provided by Springer in its journal Review of Quantitative Finance and Accounting.

Volume (Year): 24 (2005)
Issue (Month): 3 (May)
Pages: 295-312

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Handle: RePEc:kap:rqfnac:v:24:y:2005:i:3:p:295-312
Contact details of provider: Web page: http://springerlink.metapress.com/link.asp?id=102990

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