Download This PaperIs There a Credit Risk Anomaly in FX Markets?
11 Pages Posted: 31 Oct 2015 Last revised: 26 May 2016
Date Written: October 31, 2015
Abstract
This paper explores whether a link between sovereign credit ratings and currency returns exists. Perhaps contrary to expectations, it finds that currencies of countries with higher credit risk tend to generate lower returns than those with a lower credit risk. The credit risk spread cannot be explained by standard risk factors.
Keywords: Credit risk, FX markets, currency markets, carry trade, anomaly
JEL Classification: G12, G14
Suggested Citation: Suggested Citation
Grobys, Klaus and Heinonen, Jari-Pekka, Is There a Credit Risk Anomaly in FX Markets? (October 31, 2015). Finance Research Letters, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2684465 or http://dx.doi.org/10.2139/ssrn.2684465
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