Variance risk premiums and the forward premium puzzle
We provide new empirical evidence that world currency and U.S. stock variance risk premiums have nonredundant and significant predictive power for the appreciation rates of 22 with respect to the U.S. dollar, especially at the four-month and one-month horizons, respectively. The heterogeneous exposu...
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| Veröffentlicht in: | Journal of financial economics 2017-05, Vol.124 (2), p.415-440 |
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| container_end_page | 440 |
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| container_issue | 2 |
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| container_title | Journal of financial economics |
| container_volume | 124 |
| creator | Londono, Juan M. Zhou, Hao |
| description | We provide new empirical evidence that world currency and U.S. stock variance risk premiums have nonredundant and significant predictive power for the appreciation rates of 22 with respect to the U.S. dollar, especially at the four-month and one-month horizons, respectively. The heterogeneous exposures of currencies to the currency variance risk premium are systematically rising along the line of inflation risk. We rationalize these findings in a consumption-based asset pricing model, with local consumption uncertainty and global inflation uncertainty characterized, respectively, by the stock and currency variance risk premiums. |
| doi_str_mv | 10.1016/j.jfineco.2017.02.002 |
| format | Article |
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The heterogeneous exposures of currencies to the currency variance risk premium are systematically rising along the line of inflation risk. We rationalize these findings in a consumption-based asset pricing model, with local consumption uncertainty and global inflation uncertainty characterized, respectively, by the stock and currency variance risk premiums.</description><identifier>ISSN: 0304-405X</identifier><identifier>EISSN: 1879-2774</identifier><identifier>DOI: 10.1016/j.jfineco.2017.02.002</identifier><language>eng</language><publisher>Amsterdam: Elsevier B.V</publisher><subject>Appreciation ; Asset pricing ; Consumption ; Currencies ; Currency ; Currency and stock variance risk premiums ; Currency return predictability ; Economic models ; Forward premium puzzle ; Global inflation uncertainty ; Inflation ; Local consumption uncertainty ; Money ; Power ; Premiums ; Risk premiums ; Uncertainty</subject><ispartof>Journal of financial economics, 2017-05, Vol.124 (2), p.415-440</ispartof><rights>2017</rights><rights>Copyright Elsevier Sequoia S.A. 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The heterogeneous exposures of currencies to the currency variance risk premium are systematically rising along the line of inflation risk. We rationalize these findings in a consumption-based asset pricing model, with local consumption uncertainty and global inflation uncertainty characterized, respectively, by the stock and currency variance risk premiums.</description><subject>Appreciation</subject><subject>Asset pricing</subject><subject>Consumption</subject><subject>Currencies</subject><subject>Currency</subject><subject>Currency and stock variance risk premiums</subject><subject>Currency return predictability</subject><subject>Economic models</subject><subject>Forward premium puzzle</subject><subject>Global inflation uncertainty</subject><subject>Inflation</subject><subject>Local consumption uncertainty</subject><subject>Money</subject><subject>Power</subject><subject>Premiums</subject><subject>Risk premiums</subject><subject>Uncertainty</subject><issn>0304-405X</issn><issn>1879-2774</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2017</creationdate><recordtype>article</recordtype><recordid>eNqFkE9LxDAQxYMouK5-BKHguXWSJk1zEhH_wYIXFW8hTSeYutvWpKu4n94su56dyzDMe2-YHyHnFAoKtLrsis75Hu1QMKCyAFYAsAMyo7VUOZOSH5IZlMBzDuLtmJzE2EEqKdSMiFcTvOktZsHHj2wMuPLrVcxM32bTO2ZuCN8mtH-LbFxvNks8JUfOLCOe7fucvNzdPt885Iun-8eb60VuOVdT7mQl20YJqMqaqTSAM7VzVWldxay0FAW6RtWVBd44plxlWqcobbAGI6Qt5-RilzuG4XONcdLdsA59OqmpgpLXILhMKrFT2TDEGNDpMfiVCT-agt4S0p3eE9JbQhqYToSS72rnw_TCl8ego_WYWLQ-oJ10O_h_En4B6mRxlA</recordid><startdate>20170501</startdate><enddate>20170501</enddate><creator>Londono, Juan M.</creator><creator>Zhou, Hao</creator><general>Elsevier B.V</general><general>Elsevier Sequoia S.A</general><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope></search><sort><creationdate>20170501</creationdate><title>Variance risk premiums and the forward premium puzzle</title><author>Londono, Juan M. ; Zhou, Hao</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c449t-f767db950638297670fa8ff63cf62c7c1e5efb986c04bf29f6adf911be80a57c3</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2017</creationdate><topic>Appreciation</topic><topic>Asset pricing</topic><topic>Consumption</topic><topic>Currencies</topic><topic>Currency</topic><topic>Currency and stock variance risk premiums</topic><topic>Currency return predictability</topic><topic>Economic models</topic><topic>Forward premium puzzle</topic><topic>Global inflation uncertainty</topic><topic>Inflation</topic><topic>Local consumption uncertainty</topic><topic>Money</topic><topic>Power</topic><topic>Premiums</topic><topic>Risk premiums</topic><topic>Uncertainty</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Londono, Juan M.</creatorcontrib><creatorcontrib>Zhou, Hao</creatorcontrib><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><jtitle>Journal of financial economics</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Londono, Juan M.</au><au>Zhou, Hao</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Variance risk premiums and the forward premium puzzle</atitle><jtitle>Journal of financial economics</jtitle><date>2017-05-01</date><risdate>2017</risdate><volume>124</volume><issue>2</issue><spage>415</spage><epage>440</epage><pages>415-440</pages><issn>0304-405X</issn><eissn>1879-2774</eissn><abstract>We provide new empirical evidence that world currency and U.S. stock variance risk premiums have nonredundant and significant predictive power for the appreciation rates of 22 with respect to the U.S. dollar, especially at the four-month and one-month horizons, respectively. 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| ispartof | Journal of financial economics, 2017-05, Vol.124 (2), p.415-440 |
| issn | 0304-405X 1879-2774 |
| language | eng |
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| source | Access via ScienceDirect (Elsevier) |
| subjects | Appreciation Asset pricing Consumption Currencies Currency Currency and stock variance risk premiums Currency return predictability Economic models Forward premium puzzle Global inflation uncertainty Inflation Local consumption uncertainty Money Power Premiums Risk premiums Uncertainty |
| title | Variance risk premiums and the forward premium puzzle |
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