The conditional volatility premium on currency portfolios
Byrne, Joseph P. and Sakemoto, Ryuta (2021) The conditional volatility premium on currency portfolios. Journal of International Financial Markets, Institutions and Money, 74. 101415. ISSN 1042-4431 (https://doi.org/10.1016/j.intfin.2021.101415)
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Abstract
Our paper examines conditional risk-return relations in a number of currency investment strategies, while modeling economic states using a large number of underlying risk factors. We identify a time-varying relationship between currency returns and volatility risk for most currency portfolios. In particular, value and momentum portfolios present risk-return relationships which switch sign, depending upon economic states. The positive relationship for the value portfolio is associated with "flight to quality" periods and the mean reversion for nominal exchange rates during financial crises. The positive relationship for the momentum portfolio is linked to the US and global business cycles and investors require positive compensation for risk in recessions.
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Item type: Article ID code: 79300 Dates: DateEvent30 September 2021Published31 August 2021Published Online25 August 2021AcceptedSubjects: Social Sciences > Economic History and Conditions
Social Sciences > FinanceDepartment: Strathclyde Business School > Economics Depositing user: Pure Administrator Date deposited: 25 Jan 2022 16:59 Last modified: 07 Aug 2024 02:01 Related URLs: URI: https://strathprints.strath.ac.uk/id/eprint/79300