The U.S. Dollar and variance risk premia imbalances

Mads Markvart Kjær and Anders Merrild Posselt

The Financial Review, 2025, vol. 60, issue 1, 173-200

Abstract: We present a novel predictor for the Dollar factor: variance risk premia imbalances (VPI), defined as the difference in variance risk premium between the U.S. and non‐U.S. countries. We argue that VPI theoretically proxies the average volatility differential between the U.S. and non‐U.S. stochastic discount factors. VPI significantly predicts monthly U.S. dollar movements, explains roughly 10% of next‐month Dollar factor variation, and generates significant economic value for investors. We rationalize our findings in a simple consumption‐based asset pricing model.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/fire.12407

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:finrev:v:60:y:2025:i:1:p:173-200

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0732-8516

Access Statistics for this article

The Financial Review is currently edited by Cynthia J. Campbell and Arnold R. Cowan

More articles in The Financial Review from Eastern Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().