The Conditional Risk and Return Trade-Off on Currency Portfolios

Joseph Byrne and Ryuta Sakemoto

MPRA Paper from University Library of Munich, Germany

Abstract: If asset price risk-return relations vary over time based upon changing economic states, standard unconditional models may "wash out" state dependence and fail to identify that additional risk is contingently compensated with higher return. We address this matter by considering conditional risk-return relations for currency portfolios. Doing so within a data rich environment, we also develop broad based measures of investor risk. In general we find that agents require positive compensation for risks in some times and for some investment strategies. Our results identify that relations between currency returns and risk vary over time. Also we find that there are positive risk-return relations on momentum and value currency portfolios during the financial crisis. Furthermore, the risk-return relation on the momentum portfolio is counter-cyclical.

Keywords: Time-varying Parameters; Currency Carry Trade; Momentum; Value; Conditional Factor Model (search for similar items in EconPapers)
JEL-codes: C12 C58 F3 G11 G15 (search for similar items in EconPapers)
Date: 2020-04-07
New Economics Papers: this item is included in nep-fmk, nep-ore and nep-rmg
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https://mpra.ub.uni-muenchen.de/99497/1/MPRA_paper_99497.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/100187/8/MPRA_paper_100187.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/105270/7/MPRA_paper_105270.pdf revised version (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:99497

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