Template-type: ReDIF-Paper 1.0
Author-Name: Victoria Galsband
Author-Name-First: Victoria
Author-Name-Last: Galsband
Author-Name: Dr. Thomas Nitschka
Author-Name-First: Thomas
Author-Name-Last: Nitschka
Author-Person: pni214
Title: Foreign currency returns and systematic risks
Abstract: The decomposition of the market return into its cash-flow and discount-rate news driven components reveals that excess returns on low forward discount currency portfolios load positively on "good" news about the stock market's discount rates while high forward discount currencies load negatively on this news. Average currency portfolio returns are hence explained by different sensitivities to discount-rate news. A two-beta version of the CAPM, distinguishing between cash-flow and discount-rate betas, is able to price both currency and stock portfolio returns at the same time. Finally, we find that the relation between stock market news and foreign currency returns varies across the two either discount-rate news or both discount-rate and cash-flow news driven stock market booms of the past two decades.
Length: 39 pages
Creation-Date: 2011
Contact-Email: forschung@snb.ch
File-URL: https://www.snb.ch/en/publications/research/working-papers/2011/working_paper_2011_03
File-Format: text/html
Number: 2011-03
Classification-JEL: F31, F37, G15
Keywords: Currency returns, cash-flow news, discount-rate news, market return, UIP
Handle: RePEc:snb:snbwpa:2011-03