Intertemporal Risk-Return Trade-Off in Foreign Exchange Rates

26 Pages Posted: 10 May 2010 Last revised: 21 Jan 2011

Multiple version iconThere are 2 versions of this paper

Date Written: May 6, 2010

Abstract

We investigate the intertemporal risk-return trade-off of foreign exchange (FX) rates for ten currencies quoted against the USD. For each currency, we use three risk measures simultaneously that pertain to that currency; its realized volatility, its realized skewness, and its value-at-risk. We apply monthly FX excess returns and risk measures calculated from daily observations. We find that there is a significant contemporaneous risk-return trade-off for the currencies under investigation. There is no evidence of noncontemporaneous risk-return trade-off. We pay special attention to the risk-return trade-off during the recent financial crisis.

Keywords: Foreign exchange rates, Risk-return trade-off, Realized volatility, Realized skewness, Value-at-risk, Financial crisis

JEL Classification: F31, G01, G15

Suggested Citation

Christiansen, Charlotte, Intertemporal Risk-Return Trade-Off in Foreign Exchange Rates (May 6, 2010). Available at SSRN: https://ssrn.com/abstract=1601168 or http://dx.doi.org/10.2139/ssrn.1601168

Charlotte Christiansen (Contact Author)

Aarhus University - CREATES ( email )

Fuglesangs Alle 4
Aarhus V, DK 8210
Denmark

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