Intertemporal Risk and Currency Risk

Jow-Ran Chang () and Mao-Wei Hung
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Jow-Ran Chang: National Tsing Hua University
Mao-Wei Hung: National Taiwan University

Chapter 5 in Encyclopedia of Finance, 2022, pp 555-572 from Springer

Abstract: Abstract Empirical work on portfolio choice and asset pricing has shown that an investor’s current asset demand is affected by the possibility of uncertain changes in future investment opportunities. In addition, different countries have different prices for goods when there is a common numeraire in the international portfolio choice and asset pricing. In this survey, we present an intertemporal international asset pricing model (IAPM) that prices market hedging risk and exchange rate hedging risk in addition to market risk and exchange rate risk. This model allows us to explicitly separate hedging against changes in the investment opportunity set from hedging against exchange rate changes as well as separate exchange rate risk from intertemporal hedging risk.

Keywords: Currency risk; Exchange rate risk; Hedging risk; Inflation risk; International asset pricing; Intertemporal asset pricing; Intertemporal risk; Intertemporal substitution; Purchasing power parity; Recursive preference; Risk aversion (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-91231-4_5

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DOI: 10.1007/978-3-030-91231-4_5

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