Variance Risk Premiums and the Forward Premium Puzzle

By Juan M. Londono, Hao Zhou. 2012

110 citations recorded by the source corpus.

We provide new empirical evidence that world currency and U.S. stock variance risk premiums have nonredundant and significant predictive power for the appreciation rates of 22 with respect to the U.S. dollar, especially at the four-month and one-month horizons, respectively. The heterogeneous exposures of currencies to the currency variance risk premium are systematically rising along the line of inflation risk. We rationalize these findings in a consumption-based asset pricing model, with local consumption uncertainty and global inflation uncertainty characterized, respectively, by the stock and currency variance risk premiums.

Subfields: Finance

View Paper: https://www.semanticscholar.org/paper/7a604a8372e8c8ec2c18e090a83ffa070e770a00

Citations in the corpus

• Volatility Risk Premia and Exchange Rate Predictability (2016, unknown): “4See, for example, Carr and Wu (2009), Eraker (2008), Bollerslev, Tauchen, and Zhou (2009), Todorov (2010), Drechsler and Yaron (2010), Han and Zhou (2011), Mueller, Vedolin, and Yen (2011), Londono and Zhou (2012) and Buraschi, Trojani, and Vedolin (2014).”