Journal of Financial and Quantitative Analysis Vol. 50 No. 1-2 2015
Foreign Currency Returns and Systematic Risks
Abstract
We apply an empirical approximation of the intertemporal capital asset pricing model (ICAPM) to show that cross-sectional dispersion in currency returns can be rationalized by differences in currency excess returns’ sensitivities to the market return’s cash-flow news component. This finding echoes recent explanations of the value and growth stock market anomaly. The distinction between cash-flow news and discount-rate news is key to jointly explain average stock and currency returns. Our analysis reveals the presence of a common source of systematic risk in stock and foreign currency returns that is reflected in the market return’s cash-flow news component.
- DOI
- 10.1017/s002210901400043x
- Volume
- 50
- Issue
- 1-2
- Pages
- 231-250
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref