Search Results
Showing results 1 to 3 of approximately 3.
(refine search)
Working Paper
US Equity Tail Risk and Currency Risk Premia
We find that a US equity tail risk factor constructed from out-of-the-money S&P 500 put option prices explains the cross-sectional variation of currency excess returns. Currencies highly exposed to this factor offer a low currency risk premium because they appreciate when US tail risk increases. In a reduced-form model, we show that country-specific tail risk factors are priced in the cross section of currency returns only if they contain a global risk component. Motivated by the intuition from the model and by our empirical results, we construct a novel proxy for a global tail risk factor by ...
Working Paper
Can risk explain the profitability of technical trading in currency markets?
Academic studies show that technical trading rules would have earned substantial excess returns over long periods in foreign exchange markets. However, the approach to risk adjustment has typically been rather cursory. We examine the ability of a wide range of models: CAPM, quadratic CAPM, downside risk CAPM, C-CAPM, Carhart?s 4-factor model, an extended C-CAPM with durable consumption, Lustig-Verdelhan (LV) factors, volatility, skewness and liquidity to explain these technical trading returns. No model plausibly accounts for a substantial amount of technical profitability in the foreign ...
Working Paper
Can risk explain the profitability of technical trading in currency markets?
Academic studies show that technical trading rules would have earned substantial excess returns over long periods in foreign exchange markets. However, the approach to risk adjustment has typically been rather cursory. We examine the ability of a wide range of models: CAPM, quadratic CAPM, downside risk CAPM, Carhart’s 4-factor model, the C-CAPM, an extended C-CAPM with durable consumption, Lustig-Verdelhan (LV) carry-trade factor model, and models including macroeconomic factors, and foreign exchange volatility, skewness and liquidity, to explain these technical trading returns. No model ...