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Currency risk premiums redux

Published version
Peer-reviewed

Repository DOI


Type

Article

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Authors

Nucera, F 
Zinna, G 

Abstract

We study a large currency cross section using asset pricing methods which account for omitted-variable and measurement-error biases. First, we show that the pricing kernel includes at least three latent factors which 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.

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Journal Title

The Review of Financial Studies

Conference Name

Journal ISSN

0893-9454
1465-7368

Volume Title

Publisher

Oxford University Press (OUP)

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2*
2023-07-27 13:14:24
Published version added
2023-03-23 00:30:32
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