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Emerging Market Currency Excess Returns

Stephen Gilmore and Fumio Hayashi

No 14528, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We discuss the foreign currency forward premium puzzle in the context of 20 internationally tradable emerging market currencies. We find that since the late 1990s the broad basket of emerging market currencies has provided significant equity-like excess returns against a number of major market currencies, but with low volatility. We also find that the forward premium, or carry, is significant in explaining that excess return but that excess returns would still have existed even in the absence of positive carry. Our calculation shows that transactions cost due to bid/offer spreads is substantially lower than commonly supposed in the academic literature.

JEL-codes: F31 G11 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-fmk and nep-ifn
Date: 2008-12
Note: IFM
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Published as Stephen Gilmore & Fumio Hayashi, 2011. "Emerging Market Currency Excess Returns," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(4), pages 85-111, October.

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