International Asset Excess Returns and Multivariate Conditional Volatilities

Thomas Chiang () and Sheng-Yung Yang ()

Review of Quantitative Finance and Accounting, 2005, vol. 24, issue 3, 295-312

Abstract: This paper constructs a multivariate model in relating multi-asset excess returns to their conditional variances. Applying weekly data to investigate the foreign-exchange risk premium, the evidence from a multivariate GARCH model shows that the foreign-exchange excess returns are significantly correlated with economic fundamentals such as the real interest-rate differential, long-short interest-rate spread differential, and equity-premium differential. The evidence also suggests that foreign-exchange excess returns are not independent of the conditional variances of these fundamental variables, supporting the time-varying risk-premium hypothesis. Copyright Springer Science + Business Media, Inc. 2005

Keywords: exchange rate risk; time-varying risk premiums; international asset pricing; multivariate GARCH model (search for similar items in EconPapers)
Date: 2005
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DOI: 10.1007/s11156-005-6868-2

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