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Global Macro Risks in Currency Excess Returns

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  • Kimberly A. Berg
  • Nelson Mark

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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  • Kimberly A. Berg & Nelson Mark, 2017. "Global Macro Risks in Currency Excess Returns," NBER Working Papers 23764, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:23764
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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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    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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