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The time-varying risk price of currency portfolios

Joseph Byrne, Boulis Maher Ibrahim and Ryuta Sakemoto

Journal of International Money and Finance, 2022, vol. 124, issue C

Abstract: This paper formally implements time-varying risk price models for currency returns. Focusing upon time variation in risk prices, the paper explores four currency risk factors. In addition to dollar and carry factors, we employ momentum and value factors which are widely used by currency investors. We find time variation in risk prices for the dollar factor is associated with the U.S. business cycle, with notable increases at the end of economic downturns. Constant beta models moreover have smaller pricing errors across all currency portfolios, which is in contrast to the stock and bond markets.

Keywords: Currency carry trades; Risk price; Time-varying betas; Factor model; Nonparametric model (search for similar items in EconPapers)
JEL-codes: C58 E44 F31 G12 G15 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:124:y:2022:i:c:s0261560622000390

DOI: 10.1016/j.jimonfin.2022.102636

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