Foreign Exchange Dealer Asset Pricing

33 Pages Posted: 11 Nov 2019 Last revised: 18 Nov 2021

See all articles by Stefan Reitz

Stefan Reitz

University of Kiel

Dennis Umlandt

University of Innsbruck - Department of Banking and Finance

Date Written: 2019


We show that excess returns to the carry trade can be interpreted as compensation for foreign exchange dealers' capital risk. Given that the top market makers in foreign exchange are at the heart of the market's information aggregation process we also suggest that it is their marginal value of wealth which prices foreign currencies. Consistent with this hypothesis the empirical results show that shocks to the equity capital ratios of the top three foreign exchange dealers have explanatory power for the cross-sectional variation in expected currency market returns, while those of the average dealer provide no substantial additional information.

Keywords: Carry Trades, FX Dealers, Currency Risk, Intermediary Asset Pricing

JEL Classification: F31, G12, G15

Suggested Citation

Reitz, Stefan and Umlandt, Dennis, Foreign Exchange Dealer Asset Pricing (2019). Deutsche Bundesbank Discussion Paper No. 39/2019, Available at SSRN: or

Stefan Reitz (Contact Author)

University of Kiel

Olshausenstr. 40
D-24118 Kiel, Schleswig-Holstein 24118

Dennis Umlandt

University of Innsbruck - Department of Banking and Finance ( email )


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