Variance Risk Premiums and the Forward Premium Puzzle
Author | : Juan M. Londono |
Publisher | : |
Total Pages | : 67 |
Release | : 2016 |
ISBN-10 | : OCLC:1306272157 |
ISBN-13 | : |
Rating | : 4/5 (57 Downloads) |
Download or read book Variance Risk Premiums and the Forward Premium Puzzle written by Juan M. Londono and published by . This book was released on 2016 with total page 67 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide new empirical evidence that world currency and U.S. stock variance risk premiums have nonredundant and significant predictive power for the appreciation rates of twenty-two currencies with respect to the U.S. dollar, especially at the four-month and one-month horizons, respectively. The heterogeneous exposures of currencies to the currency variance risk premium are systematically rising along the line of inflation risk. We rationalize these findings in a consumption-based asset pricing model, with local consumption uncertainty and global inflation uncertainty characterized, respectively, by the stock and currency variance risk premiums.