Review of Financial Studies Vol. 37 No. 2 2024
Currency Risk Premiums Redux
open access
Abstract
We study a large currency cross-section using asset pricing methods that account for omitted-variable and measurement-error biases. First, we show that the pricing kernel includes at least three latent factors that resemble (but are not identical to) a strong U.S. “dollar” factor and two weak high Sharpe ratio “carry” and “momentum” slope factors. Evidence for an additional “value” factor is weaker. Second, using this pricing kernel, we find that only a small fraction of the over 100 nontradable candidate factors considered have a statistically significant risk premium, mostly relating to volatility, uncertainty, and liquidity conditions, rather than macro variables.
- DOI
- 10.1093/rfs/hhad049
- Volume
- 37
- Issue
- 2
- Pages
- 356-408
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref