Intertemporal Risk-Return Trade-off in Foreign Exchange Rates

Charlotte Christiansen

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: We investigate the intertemporal risk-return trade-off of foreign ex- change (FX) rates for ten currencies quoted against the USD. For each currency, we use three risk measures simultaneously that pertain to that currency; its realized volatility, its realized skewness, and its value-at-risk. We apply monthly FX excess returns and monthly FX risk measures calculated from daily observations. We find that there is a positive and signi?cant contemporaneous risk-return trade-off for most currencies. There is no evidence of noncontemporaneous risk-return trade-off. The risk-return trade-off changes during the recent financial crisis in that it becomes nonexistent for several currencies and negative for others.

Keywords: Foreign exchange rates; Risk-return trade-off; Realized volatility; Realized skewness; Value-at-risk; Financial crisis (search for similar items in EconPapers)
JEL-codes: F31 G01 G15 (search for similar items in EconPapers)
Pages: 25
Date: 2010-05-05
New Economics Papers: this item is included in nep-ifn and nep-rmg
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Journal Article: Intertemporal risk-return trade-off in foreign exchange rates (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2010-20

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