The time-varying risk price of currency portfolios

Joseph P. Byrne, Boulis Maher Ibrahim, Ryuta Sakemoto

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

This paper formally implements time-varying risk price models for currency returns. Focusing upon time variation in risk prices, the paper explores four currency risk factors. In addition to dollar and carry factors, we employ momentum and value factors which are widely used by currency investors. We find time variation in risk prices for the dollar factor is associated with the U.S. business cycle, with notable increases at the end of economic downturns. Constant beta models moreover have smaller pricing errors across all currency portfolios, which is in contrast to the stock and bond markets.
Original languageEnglish
Article number102636
Number of pages14
JournalJournal of International Money and Finance
Volume124
Early online date31 Mar 2022
DOIs
Publication statusPublished - 30 Jun 2022

Keywords

  • currency carry trades
  • factor model
  • nonparametric model
  • risk price
  • time-varying betas

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