Does Incomplete Spanning in International Financial Markets Help to Explain Exchange Rates?
© 2019 American Economic Association. All rights reserved. We assume that domestic ( foreign) agents, when investing abroad, can only trade in the foreign (domestic) risk- free rates. In a preference-free environment, we derive the exchange rate volatility and risk premia in any such incomplete span...
| Main Authors: | , |
|---|---|
| Other Authors: | |
| Format: | Article |
| Language: | English |
| Published: |
American Economic Association
2021
|
| Online Access: | https://hdl.handle.net/1721.1/136514 |
| _version_ | 1826199995084177408 |
|---|---|
| author | Lustig, Hanno Verdelhan, Adrien |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Lustig, Hanno Verdelhan, Adrien |
| author_sort | Lustig, Hanno |
| collection | MIT |
| description | © 2019 American Economic Association. All rights reserved. We assume that domestic ( foreign) agents, when investing abroad, can only trade in the foreign (domestic) risk- free rates. In a preference-free environment, we derive the exchange rate volatility and risk premia in any such incomplete spanning model, as well as a measure of exchange rate cyclicality. We find that incomplete spanning lowers the volatility of exchange rate, increases the risk premia but only by creating exchange rate predictability, and does not affect the exchange rate cyclicality. |
| first_indexed | 2024-09-23T11:29:05Z |
| format | Article |
| id | mit-1721.1/136514 |
| institution | Massachusetts Institute of Technology |
| language | English |
| last_indexed | 2024-09-23T11:29:05Z |
| publishDate | 2021 |
| publisher | American Economic Association |
| record_format | dspace |
| spelling | mit-1721.1/1365142023-12-13T16:00:03Z Does Incomplete Spanning in International Financial Markets Help to Explain Exchange Rates? Lustig, Hanno Verdelhan, Adrien Sloan School of Management © 2019 American Economic Association. All rights reserved. We assume that domestic ( foreign) agents, when investing abroad, can only trade in the foreign (domestic) risk- free rates. In a preference-free environment, we derive the exchange rate volatility and risk premia in any such incomplete spanning model, as well as a measure of exchange rate cyclicality. We find that incomplete spanning lowers the volatility of exchange rate, increases the risk premia but only by creating exchange rate predictability, and does not affect the exchange rate cyclicality. 2021-10-27T20:35:45Z 2021-10-27T20:35:45Z 2019 2021-03-26T18:38:26Z Article http://purl.org/eprint/type/JournalArticle https://hdl.handle.net/1721.1/136514 en 10.1257/AER.20160409 American Economic Review Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use. application/pdf American Economic Association American Economic Association |
| spellingShingle | Lustig, Hanno Verdelhan, Adrien Does Incomplete Spanning in International Financial Markets Help to Explain Exchange Rates? |
| title | Does Incomplete Spanning in International Financial Markets Help to Explain Exchange Rates? |
| title_full | Does Incomplete Spanning in International Financial Markets Help to Explain Exchange Rates? |
| title_fullStr | Does Incomplete Spanning in International Financial Markets Help to Explain Exchange Rates? |
| title_full_unstemmed | Does Incomplete Spanning in International Financial Markets Help to Explain Exchange Rates? |
| title_short | Does Incomplete Spanning in International Financial Markets Help to Explain Exchange Rates? |
| title_sort | does incomplete spanning in international financial markets help to explain exchange rates |
| url | https://hdl.handle.net/1721.1/136514 |
| work_keys_str_mv | AT lustighanno doesincompletespanningininternationalfinancialmarketshelptoexplainexchangerates AT verdelhanadrien doesincompletespanningininternationalfinancialmarketshelptoexplainexchangerates |