International Capital Markets and Foreign Exchange Risk
Relations between foreign exchange risk premia, exchange rate volatility, and the volatilities of the pricing kernels for the underlying currencies, are derived under the assumption of integrated capital markets. As predicted, the volatility of exchange rates is significantly associated with the est...
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| Veröffentlicht in: | The Review of financial studies 2006-10, Vol.19 (3), p.753-795 |
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| container_end_page | 795 |
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| container_title | The Review of financial studies |
| container_volume | 19 |
| creator | Brennan, Michael J. Xia, Yihong |
| description | Relations between foreign exchange risk premia, exchange rate volatility, and the volatilities of the pricing kernels for the underlying currencies, are derived under the assumption of integrated capital markets. As predicted, the volatility of exchange rates is significantly associated with the estimated volatility of the relevant pricing kernels, and foreign exchange risk premia are significantly related to both the estimated volatility of the pricing kernels and the volatility of exchange rates. The estimated foreign exchange risk premia mostly satisfy Fama's (1984) necessary conditions for explaining the forward premium puzzle, but the puzzle remains in several cases even after taking account of the pricing kernel volatilities. |
| doi_str_mv | 10.1093/rfs/hhj029 |
| format | Article |
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| fulltext | fulltext |
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| ispartof | The Review of financial studies, 2006-10, Vol.19 (3), p.753-795 |
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| language | eng |
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| source | Jstor Complete Legacy; Oxford University Press Journals All Titles (1996-Current); Business Source Complete |
| subjects | Arbitrage Bond markets Capital markets Cross-national analysis Currencies Currency Empirical tests Estimates Exchange rates Financial risks Foreign exchange Foreign exchange markets Foreign exchange rate risk Foreign exchange rates Interest rates International capital market International finance Price premiums Price volatility Pricing Risk management Risk premium Risk premiums Securities markets Volatility |
| title | International Capital Markets and Foreign Exchange Risk |
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