International Portfolio Diversification and the Foreign Exchange Risk Premium

Marianne Nessen ()

No 43, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: A multi-country model of intertemporal portfolio choice and the foreign exchange risk premium which incorporates both nominal price and relative price risk is developed. Portfolio demands are derived and interpreted in terms of diversification and hedge portfolios. The equilibrium foreign exchange risk premium is then analyzed and discussed in terms of e.g. relative and nominal price uncertainty. Special attention is paid to the effects of deviations from purchasing power parity.

Keywords: Risk premium model; international portfolio diversification (search for similar items in EconPapers)
JEL-codes: E41 E44 G15 (search for similar items in EconPapers)
Pages: 43 pages
Date: 1994-12
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:hastef:0043

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