Abstract
We offer new evidence on how currency risk is priced in the cross-section of global stock returns. The focus is on two currency risk factors'a dollar-risk factor and a carry-trade-risk factor'and their explanatory power for a variety of test assets comprised monthly returns for over 37,000 stocks from forty-six countries and over four decades. We obtain reliable positive evidence of the pricing of carry-trade factor risk and the implied premia are statistically significant and economically as expected. The pricing of the dollar-risk factor is less reliable. Our inferences depend critically on the inclusion of emerging markets.
Original language | English |
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Pages (from-to) | 863-902 |
Number of pages | 40 |
Journal | Review of Finance |
Volume | 25 |
Issue number | 3 |
DOIs | |
State | Published - 1 May 2021 |
Keywords
- Currency risk
- Exchange rates
- International asset pricing