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: Currency excess returns and global downside market risk
Abstract: We take the perspective of a US investor to assess cross-sectional differences in 19 bilateral, conditional currency excess returns in an empirical model that distinguishes between US-specific and global risks, conditional on US bull (upside) or bear (downside) markets. At first glance, our results suggest that global downside risk is compensated in average bilateral currency excess returns. Further analysis, however, reveals that downside risk and financial market volatility exposures are closely related. Moreover, the downside risk evidence is mostly driven by emerging markets' currencies. We conclude that downside risk models do not fully address the issue of foreign currency excess returns being largely unrelated to standard risk factors.
Length: 58 pages
Creation-Date: 2013
Contact-Email: forschung@snb.ch
File-URL: https://www.snb.ch/en/publications/research/working-papers/2013/working_paper_2013_07
File-Format: text/html
Number: 2013-07
Classification-JEL: F31, G15
Keywords: CAPM, downside risk, exchange rate, forward premium puzzle, uncoveredinterest rate parity, upside risk
Handle: RePEc:snb:snbwpa:2013-07