Time-varying risk aversion and currency excess returns
Yükleniyor...
Dosyalar
Tarih
2022-01
Dergi Başlığı
Dergi ISSN
Cilt Başlığı
Yayıncı
Elsevier Ltd
Erişim Hakkı
info:eu-repo/semantics/closedAccess
Özet
This paper documents an economically significant risk premium associated with a currency's sensitivity to time-varying risk aversion. Consequently, an investment strategy that takes a long (short) position in currencies with high (low) sensitivity to aggregate market risk aversion yields significantly positive excess returns. While advanced market currencies including the Euro, Yen and Swiss Francs dominate the short end of these portfolios with low sensitivity to risk aversion, emerging market currencies including the Brazilian Real, Mexican Peso and Turkish Lira are found to be the most sensitive currencies to risk aversion. The excess returns from the proposed strategy are significant even after controlling for systematic equity market risk factors as well as liquidity risk and cannot be explained by measures of economic conditions or uncertainty. Interestingly, the excess returns generated by the risk aversion-based strategy are found to have significant loadings on global momentum, suggesting possible commonality in the behavioral drivers of anomalies in the global equity and currency markets. The findings highlight the role of behavioral factors as predictor of currency excess returns with significant investment implications.
Açıklama
Anahtar Kelimeler
Carry trade, Cross-section, Exchange rate, Investor sentiment, Risk Premium, Stock, Time-varying risk aversion
Kaynak
Research in International Business and Finance
WoS Q Değeri
Q1
Scopus Q Değeri
Q1
Cilt
59
Sayı
Künye
Demirer, R., Yüksel, A. & Yüksel, S. A. (2022). Time-varying risk aversion and currency excess returns. Research in International Business and Finance, 59, 1-15. doi:10.1016/j.ribaf.2021.101555
