Forward and Spot Exchange Rates in a Multi-Currency World

Hassan, Tarek A.; Mano, Rui

doi:10.2139/ssrn.2272893

Cited by 15 publications

(56 citation statements)

References 73 publications

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“…The long‐run wealth distribution in this economy is well defined, since we are still adopting a symmetric calibration (see Colacito, Croce, and Liu ()). In finite samples, however, our countries feature substantial heterogeneity, consistent with the empirical investigation of Lustig, Roussanov, and Verdelhan () and Hassan and Mano (). These heterogeneous loadings are a reduced‐form way of capturing a mix of fundamental differences across countries, such as size (Hassan ()), commodity intensity (Ready, Roussanov, and Ward ()), monetary policy rules (Backus et al.…”

supporting

confidence: 85%

“…In this section, we show that accounting for persistent heterogeneity in the exposure to world news shocks can produce sizeable cross‐sectional currency premia. Furthermore, our model produces equivalent results when sorting countries on (i) nearly permanent heterogeneous exposure to endowment shocks (Lustig, Roussanov, and Verdelhan (), Hassan and Mano ()), (ii) NFA positions (Della Corte, Riddiough, and Sarno ()), or (iii) the level of their risk‐free rate (Lustig, Roussanov, and Verdelhan ()).…”

Section: The Cross Section Of Currency Risk Premiamentioning

confidence: 86%

“…We think of the

β_{i, t}^{z}

coefficients as devices to capture the heterogeneity documented by Lustig, Roussanov, and Verdelhan (), Backus et al. (), Ready, Roussanov, and Ward (), and Hassan and Mano () in a parsimonious, reduced‐form manner.…”

Section: The Economymentioning

confidence: 99%

See 2 more Smart Citations

Currency Risk Factors in a Recursive Multicountry Economy

Colacito¹,

Croce²,

Gavazzoni³

et al. 2018

The Journal of Finance

102

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Focusing on the 10 most traded currencies, we provide empirical evidence regarding a significant heterogeneous exposure to global growth news shocks. We incorporate this empirical fact in a frictionless risk‐sharing model with recursive preferences, multiple countries, and multiple consumption goods whose supply features both global and local short‐ and long‐run shocks. Since news shocks are priced, heterogeneous exposure to long‐lasting global growth shocks results in a relevant reallocation of international resources and currency adjustments. Our unified framework replicates the properties of the HML‐FX and HML‐NFA carry‐trade strategies studied by Lustig, Roussanov, and Verdelhan and Della Corte, Riddiough, and Sarno.

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supporting

confidence: 85%

Section: The Cross Section Of Currency Risk Premiamentioning

confidence: 86%

See 1 more Smart Citation

Currency Risk Factors in a Recursive Multicountry Economy

Colacito¹,

Croce²,

Gavazzoni³

et al. 2018

The Journal of Finance

102

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“…Similar to Hassan and Mano (), we find that the cross‐currency dimension in the forward premium is mainly responsible for the profitability of the CT from the Swiss perspective. The similarity in terms of what dimension of the forward premium determines the CT is not surprising because it is well established that the portfolio‐based CT is independent from a base currency (Lustig, Roussanov, & Verdelhan, ).…”

Section: Introductionsupporting

confidence: 87%

Carry trade and forward premium puzzle from the perspective of a safe‐haven currency

Haab

Nitschka

2019

Rev International Economics

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Swiss franc exchange rates exhibit safe‐haven characteristics, which suggest a close link between the forward premium puzzle and profitability of the carry trade. Our analysis of Swiss franc exchange rates shows that the two phenomena are distinct from each other, thus corroborating U.S. dollar evidence. Persistent exposures to two different global shocks drive the two phenomena in Swiss franc exchange rates. Moreover, we find significant links between expected average Swiss franc exchange rate changes and macroeconomic conditions during the period of the minimum Swiss franc exchange rate against the euro, but not during the rest of the sample period.

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“…This finding suggests that the asset pricing view on currency returns is not necessarily the best or only explanation of ex post deviations from UIP. From a different angle Hassan and Mano (2014) make a similar point by stressing that ex post deviations from UIP and returns on currency investment strategies are separate phenomena. We corroborate these points.…”

Section: Uip Regressionsmentioning

confidence: 99%

On financial risk and the safe haven characteristics of Swiss franc exchange rates

Grisse

Nitschka

2015

Journal of Empirical Finance

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We analyse bilateral Swiss franc exchange rate returns in an asset pricing framework to evaluate the Swiss franc's safe haven characteristics. A "safe haven" currency is a currency that offers hedging value against global risk, both on average and in particular in crisis episodes. To explore these issues we estimate the relationship between exchange rate returns and risk factors in augmented UIP regressions, using recently developed econometric methods to account for the possibility that the regression coefficients may be changing over time. Our results highlight that in response to increases in global risk the Swiss franc appreciates against typical carry trade investment currencies such as the Australian dollar, but depreciates against the US dollar, the Yen and the British pound. Thus, the Swiss franc exhibits safehaven characteristics against many, but not all other currencies. We find statistically significant time variation in the relationship between Swiss franc returns and risk factors, with this link becoming stronger in times of stress.

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Forward and Spot Exchange Rates in a Multi-Currency World

Cited by 15 publications

References 73 publications

Currency Risk Factors in a Recursive Multicountry Economy

Currency Risk Factors in a Recursive Multicountry Economy

Carry trade and forward premium puzzle from the perspective of a safe‐haven currency

On financial risk and the safe haven characteristics of Swiss franc exchange rates

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