Technology Diffusion and Currency Carry Trades

55 Pages Posted: 14 Dec 2015 Last revised: 8 Oct 2019

See all articles by Ilias Filippou

Ilias Filippou

Washington University in St. Louis - John M. Olin Business School

Date Written: May 5, 2016

Abstract

The paper identifies a unique dimension of currency carry trades that it is related to the intensity of technology transition across countries. Particularly, I show that technology diffusion is a fundamental determinant of currency premia and it is priced in the cross-section of currency excess returns. Technology spillovers are measured based on the R&D concentration as well as the inflows of foreign direct investment (FDI) that are associated with domestic patents owned by foreign investors. Intuitively, carry traders require a risk premium for financing risky innovation in countries with high patent related FDI inflows. Similarly, a positive risk premium is obtained from countries with high concentration of technology transition as investment currencies are subject to the R&D of the funding countries.

Keywords: Technology Adaption, Comparative Advantage, Currency Risk Premium

JEL Classification: F31, G11, O32, O34

Suggested Citation

Filippou, Ilias, Technology Diffusion and Currency Carry Trades (May 5, 2016). Available at SSRN: https://ssrn.com/abstract=2702477 or http://dx.doi.org/10.2139/ssrn.2702477

Ilias Filippou (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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