Emerging Market Currency Excess Returns

63 Pages Posted: 9 Dec 2008 Last revised: 13 Sep 2010

See all articles by Stephen W. Gilmore

Stephen W. Gilmore

AIG Financial Products - Banque AIG

Fumio Hayashi

National Graduate Institute for Policy Studies; Harvard University - Department of Economics

Date Written: December 2008

Abstract

We discuss the foreign currency forward premium puzzle in the context of 20 internationally tradable emerging market currencies. We find that since the late 1990s the broad basket of emerging market currencies has provided significant equity-like excess returns against a number of major market currencies, but with low volatility. We also find that the forward premium, or carry, is significant in explaining that excess return but that excess returns would still have existed even in the absence of positive carry. Our calculation shows that transactions cost due to bid/offer spreads is substantially lower than commonly supposed in the academic literature.

Suggested Citation

Gilmore, Stephen W. and Hayashi, Fumio, Emerging Market Currency Excess Returns (December 2008). NBER Working Paper No. w14528. Available at SSRN: https://ssrn.com/abstract=1312623

Stephen W. Gilmore

AIG Financial Products - Banque AIG ( email )

1 Curzon Street
London, W1J 5RT
United Kingdom

Fumio Hayashi (Contact Author)

National Graduate Institute for Policy Studies ( email )

Roppongi 7-22-1
Minato-ku
Tokyo, 106-0032
Japan

HOME PAGE: http://https://sites.google.com/site/fumiohayashi/home

Harvard University - Department of Economics

Littauer Center
Cambridge, MA 02138
United States

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