Currency excess returns and global downside market risk

Victoria Atanasov and Thomas Nitschka

Journal of International Money and Finance, 2014, vol. 47, issue C, 268-285

Abstract: We assess cross-sectional differences in 23 bilateral currency excess returns in an empirical model that distinguishes between US-specific and global risks, conditional on US bull (upside) or bear (downside) markets. Using the US dollar as numeraire currency, our results suggest that global downside risk is compensated in conditional and unconditional, bilateral currency excess returns. This finding is mostly driven by the emerging markets' currencies in our sample. We also find that the link between the global downside risk and risks associated with a typical carry trade strategy is much weaker for emerging markets' currencies than for developed markets' currencies.

Keywords: CAPM; Downside risk; Exchange rate; Forward premium puzzle; Uncovered interest rate parity; Upside risk (search for similar items in EconPapers)
JEL-codes: F31 G15 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (34)

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Working Paper: Currency excess returns and global downside market risk (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:47:y:2014:i:c:p:268-285

DOI: 10.1016/j.jimonfin.2014.06.006

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