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Intertemporal Risk and Currency Risk

In: Encyclopedia of Finance

Author

Listed:
  • Jow-Ran Chang

    (National Tsing Hua University)

  • Mao-Wei Hung

    (National Taiwan University)

Abstract

Empirical work on portfolio choice and asset pricing has shown that an investor’s current asset demand is affected by the possibility of uncertain changes in future investment opportunities. In addition, different countries have different prices for goods when there is a common numeraire in the international portfolio choice and asset pricing. In this survey, we present an intertemporal international asset pricing model (IAPM) that prices market hedging risk and exchange rate hedging risk in addition to market risk and exchange rate risk. This model allows us to explicitly separate hedging against changes in the investment opportunity set from hedging against exchange rate changes as well as separate exchange rate risk from intertemporal hedging risk.

Suggested Citation

  • Jow-Ran Chang & Mao-Wei Hung, 2022. "Intertemporal Risk and Currency Risk," Springer Books, in: Cheng-Few Lee & Alice C. Lee (ed.), Encyclopedia of Finance, edition 0, chapter 5, pages 555-572, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-91231-4_5
    DOI: 10.1007/978-3-030-91231-4_5
    as

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