EconPapers    
Economics at your fingertips  
 

Expected currency returns and volatility risk premia

Jose Ornelas

The North American Journal of Economics and Finance, 2019, vol. 49, issue C, 206-234

Abstract: This paper addresses the predictive ability of currency volatility risk premium – the difference between an implied and a realized volatility – over US dollar exchange rates using a time series perspective. The intuition is that, when risk aversion sentiment increases, the market quickly discounts the currency, and later this discount is accrued, leading to a future currency appreciation. Based on two different samples with a diversified set of 30 currencies, I document a positive relationship between currency volatility risk premium and future currency returns. Results remain robust even after controlling for traditional fundamental predictors like Purchase Power Parity and interest rate differential.

Keywords: Currency return predictability; Volatility risk premium (search for similar items in EconPapers)
JEL-codes: F31 F37 G12 G15 G17 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062940818303097
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Expected Currency Returns and Volatility Risk Premia (2017) Downloads
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:eee:ecofin:v:49:y:2019:i:c:p:206-234

DOI: 10.1016/j.najef.2019.03.015

Access Statistics for this article

The North American Journal of Economics and Finance is currently edited by Hamid Beladi

More articles in The North American Journal of Economics and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2025-03-19
Handle: RePEc:eee:ecofin:v:49:y:2019:i:c:p:206-234