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- Title
Foreign Currency Returns and Systematic Risks.
- Authors
Atanasov, Victoria; Nitschka, Thomas
- 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.
- Subjects
FOREIGN exchange market; FINANCIAL market reaction; CAPITAL assets pricing model; RATE of return on stocks; INTEREST rates; VALUE investing (Finance); GROWTH stocks; SYSTEMIC risk (Finance); RISK premiums
- Publication
Journal of Financial & Quantitative Analysis, 2015, Vol 50, Issue 1/2, p231
- ISSN
0022-1090
- Publication type
Article
- DOI
10.1017/S002210901400043X