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An Economic Evaluation of Empirical Exchange Rate Models
Della Corte, Pasquale; Sarno, Lucio; Tsiakas, Ilias - C.E.P.R. Discussion Papers - 2007
forward premia on monthly exchange rate returns in a framework that allows for volatility timing. We implement Bayesian … stochastic volatility innovations; and (ii) strategies based on combined forecasts yield large economic gains over the random …
Persistent link: https://www.econbiz.de/10005123849
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Properties of Foreign Exchange Risk Premiums
Sarno, Lucio; Schneider, Paul; Wagner, Christian - C.E.P.R. Discussion Papers - 2011
We study the properties of foreign exchange risk premiums that can explain the forward bias puzzle, defined as the tendency of high-interest rate currencies to appreciate rather than depreciate. These risk premiums arise endogenously from the no-arbitrage condition relating the term structure of...
Persistent link: https://www.econbiz.de/10009209825
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Foreign Exchange Risk and the Predictability of Carry Trade Returns
Cenedese, Gino; Sarno, Lucio; Tsiakas, Ilias - Rimini Centre for Economic Analysis (RCEA) - 2014
losses, which is consistent with the unwinding of the carry trade in times of high volatility. The decomposition of market … on the return to the carry trade, a popular investment strategy that borrows in low-interest currencies and lends in high …-interest currencies. Using quantile regressions, we nd that higher market variance is signicantly related to large future carry trade …
Persistent link: https://www.econbiz.de/10010748424
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Which Fundamentals Drive Exchange Rates? A Cross-Sectional Perspective
Sarno, Lucio; Schmeling, Maik - C.E.P.R. Discussion Papers - 2013
Standard present-value models suggest that exchange rates are driven by expected future fundamentals, implying that exchange rates contain information about future fundamentals. We test this key empirical prediction of present-value models in a sample of 35 currency pairs ranging from 1900 to...
Persistent link: https://www.econbiz.de/10011083568
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The Scapegoat Theory of Exchange Rates: The First Tests
Fratzscher, Marcel; Sarno, Lucio; Zinna, Gabriele - C.E.P.R. Discussion Papers - 2012
This paper provides an empirical test of the scapegoat theory of exchange rates (Bacchetta and van Wincoop 2004, 2011), as an attempt to evaluate its potential for explaining the poor empirical performance of traditional exchange rate models. This theory suggests that market participants may at...
Persistent link: https://www.econbiz.de/10011084052
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Properties of foreign exchange risk premiums
Sarno, Lucio; Schneider, Paul; Wagner, Christian - In: Journal of Financial Economics 105 (2012) 2, pp. 279-310
We study the properties of foreign exchange risk premiums that can explain the forward bias puzzle, defined as the tendency of high-interest rate currencies to appreciate rather than depreciate. These risk premiums arise endogenously from the no-arbitrage condition relating the term structure of...
Persistent link: https://www.econbiz.de/10010617596
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Price discovery in currency markets
Osler, Carol L.; Mende, Alexander; Menkhoff, Lukas - In: Journal of International Money and Finance 30 (2011) 8, pp. 1696-1718
the spreads dealers quote to their customers are not positively related to a trade’s likely information content. The paper …
Persistent link: https://www.econbiz.de/10010577041
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The Scapegoat Theory of Exchange Rates: The First Tests
Fratzscher, Marcel; Sarno, Lucio; Zinna, Gabriele - DIW Berlin (Deutsches Institut für Wirtschaftsforschung) - 2013
This paper provides an empirical test of the scapegoat theory of exchange rates (Bacchetta and van Wincoop 2004, 2011). This theory suggests that market participants may at times attach significantly more weight to individual economic fundamentals to rationalize the pricing of currencies, which...
Persistent link: https://www.econbiz.de/10010643156
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Assessing the benefits of international portfolio diversification in bonds and stocks.
De Santis, Roberto A.; Sarno, Lucio - 2008
This paper considers a stylized asset pricing model where the returns from exchange rates, stocks and bonds are linked by basic risk-arbitrage relationships. Employing GMM estimation and monthly data for 18 economies and the US (treated as the domestic country), we identify through a simple test...
Persistent link: https://www.econbiz.de/10011604929
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The scapegoat theory of exchange rates: the first tests
Fratzscher, Marcel; Sarno, Lucio; Zinna, Gabriele - 2012
This paper provides an empirical test of the scapegoat theory of exchange rates (Bacchetta and van Wincoop 2004, 2011), as an attempt to evaluate its potential for explaining the poor empirical performance of traditional exchange rate models. This theory suggests that market participants may at...
Persistent link: https://www.econbiz.de/10011605463