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http://ssrn.com/abstract=1930516
 
 

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The Share of Systematic Variation in Bilateral Exchange Rates


Adrien Verdelhan


Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

March 13, 2012

AFA 2013 San Diego Meetings Paper

Abstract:     
Two economically motivated factors account for 20% to 90% of the daily, monthly, quarterly, and annual exchange rate movements. These two factors -- carry and dollar -- are risk factors: the former accounts for the cross-section of interest rate-sorted currency returns, while the latter accounts for a novel cross-section of dollar beta-sorted currency returns. The different shares of systematic risk across currencies are related to financial and macroeconomic measures of world integration. They point to large shares of global shocks in the dynamics of exchange rates, as well as large differences across countries. The results off er new challenges for international macroeconomics and fi nance models.

Number of Pages in PDF File: 54

Keywords: exchange rates, forward premium puzzle, risk premium

JEL Classification: F31

working papers series





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Date posted: September 19, 2011 ; Last revised: November 7, 2014

Suggested Citation

Verdelhan, Adrien, The Share of Systematic Variation in Bilateral Exchange Rates (March 13, 2012). AFA 2013 San Diego Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1930516 or http://dx.doi.org/10.2139/ssrn.1930516

Contact Information

Adrien Verdelhan (Contact Author)
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
77 Massachusetts Ave.
E62-416
Cambridge, MA 02142
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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