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Boyarchenko, Nina; Fuster, Andreas; Lucca, David O. - 2014

Spreads of agency mortgage-backed securities (MBS) vary significantly in the cross section and over time, but the sources of this variation are not well understood. We document that, in the cross section, MBS spreads adjusted for the prepayment option show a pronounced smile with respect to the...

Persistent link: https://www.econbiz.de/10010404146

Toxic arbitrage

Foucault, Thierry; Kozhan, Roman; Tham, Wing Wah - 2015

Short lived arbitrage opportunities arise when prices adjust with a lag to new information. They are toxic because they … expose dealers to the risk of trading at stale quotes. Hence, theory implies that more frequent toxic arbitrage opportunities … triangular arbitrage. As predicted, illiquidity is higher on days when the fraction of toxic arbitrage opportunities and …

Persistent link: https://www.econbiz.de/10010499534

Deviations from triangular arbitrage parity in foreign exchange and Bitcoin markets

Reynolds, Julia E.; Sögner, Leopold; Wagner, Martin - 2020 - This Version: July 2020

as periods in which substantial deviations from arbitrage parities take place. In particular, we focus on deviations from … the triangular arbitrage parity for exchange rate triplets from a cointegration perspective. Due to increasing attention … fiat currencies. We do not find evidence for substantial deviations from the triangular arbitrage parity when only …

Persistent link: https://www.econbiz.de/10012251074

Mispricing and risk premia in currency markets

Bartram, Söhnke M.; Djuranovik, Leslie; Garratt, Anthony; … - 2023

Persistent link: https://www.econbiz.de/10014390295

Foreign exchange dealer asset pricing

Reitz, Stefan; Umlandt, Dennis - 2019

We show that excess returns to the carry trade can be interpreted as compensation for foreign exchange dealers' capital risk. Given that the top market makers in foreign exchange are at the heart of the market's information aggregation process we also suggest that it is their marginal value of...

Persistent link: https://www.econbiz.de/10012109710

Systematic consumption risk in currency returns

Hoffmann, Mathias; Suter, Rahel - 2013

We sort currencies by countries' consumption growth over the past four quarters. Currency portfolios of countries experiencing consumption booms have higher Sharpe ratios than those of countries going through a consumption-based recession. A carry strategy that goes short in countries that are...

Persistent link: https://www.econbiz.de/10009752999

The frequency of one-day abnormal returns and price fluctuations in the FOREX

Caporale, Guglielmo Maria; Plastun, Alex; Oliinyk, Viktor - 2020

This paper analyses the explanatory power of the frequency of abnormal returns in the FOREX for the EURUSD, GBRUSD, USDJPY, EURJPY, GBPCHF, AUDUSD and USDCAD exchange rates over the period 1994-2019. Abnormal returns are detected using a dynamic trigger approach; then the following hypotheses...

Persistent link: https://www.econbiz.de/10012196296

The pricing of unexpected volatility in the currency market

Lu, Wenna; Copeland, Laurence S.; Xu, Yongdeng - 2021

Many recent papers have investigated the role played by volatility in determining the cross-section of currency returns. This paper employs two time-varying factor models: a threshold model and a Markov-switching model to price the excess returns from the currency carry trade. We show that the...

Persistent link: https://www.econbiz.de/10012591966

FX liquidity risk and carry trade premia

Söderlind, Paul; Somogyi, Fabricius - 2022

The foreign exchange (FX) market is considered to be the largest and presumably most liquid financial market in the world. We show that even in this market exposure to liquidity risk commands a non-trivial risk premium of up to 3.6% per annum. In particular, systematic and currency-specific...

Persistent link: https://www.econbiz.de/10013252868

Does the pricing kernel anomaly reflect forward looking beliefs?

Sala, Carlo - 2015

We propose a nonparametric Bayesian approach for the estimation of the pricing kernel. Historical stock returns and option market data are combined through the Dirichlet Process (DP) to construct an option-adjusted physical measure. The precision parameter of the DP process is calibrated to the...

Persistent link: https://www.econbiz.de/10011506354

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