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Global Macro Risks in Currency Excess Returns

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  • Kimberly Berg
  • Nelson C. Mark

Abstract

We study a cross section of carry-trade-generated currency excess returns in terms of their exposure to global fundamental macroeconomic risk. The cross-country high-minuslow (HML) conditional skewness of the unemployment gap—our measure of global macroeconomic uncertainty—is a factor that is robustly priced in currency excess returns. A widening of the HML gap signifies increasing divergence, disparity and inequality of economic performance across countries.

Suggested Citation

  • Kimberly Berg & Nelson C. Mark, 2016. "Global Macro Risks in Currency Excess Returns," Staff Working Papers 16-32, Bank of Canada.
  • Handle: RePEc:bca:bocawp:16-32
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    Cited by:

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    2. 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.
    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. Colacito, Riccardo & Croce, Mariano Massimiliano & Liu, Yang & Shaliastovich, Ivan, 2018. "Volatility Risk Pass-Through," CEPR Discussion Papers 13325, C.E.P.R. Discussion Papers.
    5. repec:eee:jimfin:v:88:y:2018:i:c:p:242-259 is not listed on IDEAS
    6. repec:eee:jimfin:v:88:y:2018:i:c:p:212-227 is not listed on IDEAS

    More about this item

    Keywords

    Asset Pricing; Exchange rates; Interest rates;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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