Positive Mean Currency Returns

21 Pages Posted: 23 Nov 2013 Last revised: 21 Jul 2017

See all articles by Yufen Fu

Yufen Fu

Tunghai University

George Blazenko

Simon Fraser University (SFU) - Finance Area

Date Written: July 1, 2013

Abstract

In this paper, we report evidence that mean currency returns are positive for both a domestic investor in a foreign currency and a foreign investor in a domestic currency. A shared currency gain creates a positive volatility factor for both. Volatility dominates other return determinants that have opposite impacts on an exchange rate and its inverse to produce positive average returns that we find to be over one per-cent per annum. Positive mean returns impact the global asset allocation of investors to accumulate to a large fraction of wealth creation over time. Currency returns are also large given the common a-priori expectation of investors that they average zero.

Keywords: Currency returns, exchange rate risk

JEL Classification: F31

Suggested Citation

Fu, Yufen and Blazenko, George W., Positive Mean Currency Returns (July 1, 2013). The Journal of Business Inquiry (Forthcoming). Available at SSRN: https://ssrn.com/abstract=2358048 or http://dx.doi.org/10.2139/ssrn.2358048

Yufen Fu

Tunghai University ( email )

Taichung 407
Taiwan

George W. Blazenko (Contact Author)

Simon Fraser University (SFU) - Finance Area ( email )

Burnaby, British Columbia V5A 1S6
Canada

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