Abstract:The empirical failure of the uncovered interest rate parity condition seems to be the reflection of risk premia on foreign currencies. After the formation of foreign currency portfolios according to interest rate differentials or forward discounts, recent studies suggest that either consumption-or currency return-based pricing factors explain the cross-section of foreign currency portfolio returns. The contribution of this paper is twofold. It shows that the returnbased explanation applies to foreign currency … Show more
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