Conditional Risk Premia in Currency Markets and Other Asset Classes

Martin Lettau, Matteo Maggiori and Michael Weber

No 9484, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The downside risk CAPM (DR-CAPM) can price the cross section of currency returns. The market-beta differential between high and low interest rate currencies is higher conditional on bad market returns, when the market price of risk is also high, than it is conditional on good market returns. Correctly accounting for this variation is crucial for the empirical performance of the model. The DR-CAPM can jointly explain the cross section of equity, commodity, sovereign bond and currency returns, thus offering a unified risk view of these asset classes. In contrast, popular models that have been developed for a specific asset class fail to jointly price other asset classes.

Keywords: Carry trade; Commodity basis; Equity cross section; Downside risk (search for similar items in EconPapers)
JEL-codes: F31 F34 G11 G15 (search for similar items in EconPapers)
Date: 2013-05
New Economics Papers: this item is included in nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
https://cepr.org/publications/DP9484 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Conditional risk premia in currency markets and other asset classes (2014)
Working Paper: Conditional Risk Premia in Currency Markets and Other Asset Classes (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:9484

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP9484

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().