Currency Risk Premiums Redux

Federico Nucera, Lucio Sarno and Gabriele Zinna

The Review of Financial Studies, 2024, vol. 37, issue 2, 356-408

Abstract: We study a large currency cross-section using asset pricing methods that account for omitted-variable and measurement-error biases. First, we show that the pricing kernel includes at least three latent factors that resemble (but are not identical to) a strong U.S. “dollar” factor and two weak high Sharpe ratio “carry” and “momentum” slope factors. Evidence for an additional “value” factor is weaker. Second, using this pricing kernel, we find that only a small fraction of the over 100 nontradable candidate factors considered have a statistically significant risk premium, mostly relating to volatility, uncertainty, and liquidity conditions, rather than macro variables.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

JEL-codes: F31 G12 G15 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

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