IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/20587.html

Skewness Risk Premia and the Cross-Section of Currency Returns

Author

Listed:
  • Li, Junye
  • Sarno, Lucio
  • Zinna, Gabriele

Abstract

Using model-free skewness measures that exploit the asymmetry in semivariances and option data from the over-the-counter currency market, we find that buying currencies with a high skewness risk premium (SRP) and selling currencies with a low SRP generates high returns and Sharpe ratio. Asset pricing tests – which control for omitted variables and measurement errors – show that a SRP factor enters the currency pricing kernel and is central to the pricing of risks inherent in a broad currency cross-section of 60 portfolio excess returns. These results imply that skewness risk is a strong and priced source of currency risk.

Suggested Citation

  • Li, Junye & Sarno, Lucio & Zinna, Gabriele, 2025. "Skewness Risk Premia and the Cross-Section of Currency Returns," CEPR Discussion Papers 20587, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20587
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP20587
    Download Restriction: no
    ---><---

    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:20587. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CEPR (email available below). General contact details of provider: https://cepr.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.