Common Risk Factors in Currency Markets
http://rfs.oxfordjournals.org/content/early/2011/08/26/rfs.hhr068.full
| Main Authors: | , |
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| Other Authors: | |
| Format: | Article |
| Language: | en_US |
| Published: |
Oxford University Press on behalf of The Society for Financial Studies
2011
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| Online Access: | http://hdl.handle.net/1721.1/66103 https://orcid.org/0000-0002-0319-5531 |
| _version_ | 1811076168267333632 |
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| author | Roussano, Nikolai Lustig, Hanno |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Roussano, Nikolai Lustig, Hanno |
| author_sort | Roussano, Nikolai |
| collection | MIT |
| description | http://rfs.oxfordjournals.org/content/early/2011/08/26/rfs.hhr068.full |
| first_indexed | 2024-09-23T10:17:23Z |
| format | Article |
| id | mit-1721.1/66103 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T10:17:23Z |
| publishDate | 2011 |
| publisher | Oxford University Press on behalf of The Society for Financial Studies |
| record_format | dspace |
| spelling | mit-1721.1/661032022-09-30T20:09:32Z Common Risk Factors in Currency Markets Roussano, Nikolai Lustig, Hanno Sloan School of Management Verdelhan, Adrien Frederic Verdelhan, Adrien Frederic http://rfs.oxfordjournals.org/content/early/2011/08/26/rfs.hhr068.full We identify a “slope” factor in exchange rates. High interest rate currencies load more on this slope factor than low interest rate currencies. This factor accounts for most of the cross-sectional variation in average excess returns between high and low interest rate currencies. A standard, no-arbitrage model of interest rates with two factors—a country-specific factor and a global factor—can replicate these findings, provided there is sufficient heterogeneity in exposure to global or common innovations. We show that our slope factor identifies these common shocks, and we provide empirical evidence that it is related to changes in global equity market volatility. By investing in high interest rate currencies and borrowing in low interest rate currencies, U.S. investors load up on global risk. 2011-09-28T18:27:13Z 2011-09-28T18:27:13Z 2011-08 2011-05 Article http://purl.org/eprint/type/JournalArticle 0893-9454 1465-7368 http://hdl.handle.net/1721.1/66103 Lustig, Hanno, Nikolai Roussanov, and Adrien Verdelhan. “Common Risk Factors in Currency Markets.” Review of Financial Studies (2011) 24(11): 3731-3777. https://orcid.org/0000-0002-0319-5531 en_US http://dx.doi.org/10.1093/rfs/hhr068 Review of Financial Studies Creative Commons Attribution-Noncommercial-Share Alike 3.0 http://creativecommons.org/licenses/by-nc-sa/3.0/ application/pdf Oxford University Press on behalf of The Society for Financial Studies MIT web domain |
| spellingShingle | Roussano, Nikolai Lustig, Hanno Common Risk Factors in Currency Markets |
| title | Common Risk Factors in Currency Markets |
| title_full | Common Risk Factors in Currency Markets |
| title_fullStr | Common Risk Factors in Currency Markets |
| title_full_unstemmed | Common Risk Factors in Currency Markets |
| title_short | Common Risk Factors in Currency Markets |
| title_sort | common risk factors in currency markets |
| url | http://hdl.handle.net/1721.1/66103 https://orcid.org/0000-0002-0319-5531 |
| work_keys_str_mv | AT roussanonikolai commonriskfactorsincurrencymarkets AT lustighanno commonriskfactorsincurrencymarkets |