Abstract

http://ssrn.com/abstract=1942906
 
 

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Equity Risk Premia and the Pricing of Foreign Exchange Risk


Robert A. Korajczyk


Northwestern University - Kellogg School of Management

Claude Viallet


INSEAD

November 1991

Journal of International Economics, Vol. 33, Nos. 3-4, 1992

Abstract:     
We investigate the relation between the risk premia observed in forward foreign exchange markets and international equity markets using the Arbitrage Pricing Theory. If returns on well-diversified equity portfolios explain movements in agents' intertemporal marginal rate of substitution then the time variation in forward risk premia should be explained by the forward contract's sensitivity to the equity portfolios and the time variation in the risk premia of those portfolios. We find that equity and forward risk premia are related, but that forward contracts have a component of their conditional mean returns unexplained by their relation to equity factors.

Number of Pages in PDF File: 34

Keywords: Foreign exchange, uncovered interest parity, carry trade, forward market, Arbitrage Pricing Theory, APT, Asset Pricing Model

JEL Classification: F3, F31, G1, G12, G15

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Date posted: October 13, 2011  

Suggested Citation

Korajczyk, Robert A. and Viallet, Claude, Equity Risk Premia and the Pricing of Foreign Exchange Risk (November 1991). Journal of International Economics, Vol. 33, Nos. 3-4, 1992. Available at SSRN: http://ssrn.com/abstract=1942906

Contact Information

Robert A. Korajczyk (Contact Author)
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8336 (Phone)
847-491-5719 (Fax)
Claude Viallet
INSEAD ( email )
Boulevard de Constance
77305 Fontainebleau Cedex
France
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