Trade Network Centrality and Currency Risk Premia

By Robert J. Richmond. Journal of Finance, 2019

116 citations recorded by the source corpus.

I uncover an economic source of exposure to global risk that drives international asset prices. Countries that are more central in the global trade network have lower interest rates and currency risk premia. To explain these findings, I present a general equilibrium model in which central countries' consumption growth is more exposed to global consumption growth shocks. This causes the currencies of central countries to appreciate in bad times, resulting in lower interest rates and currency risk premia. Empirically, central countries' consumption growth covaries more with world consumption growth, further validating the proposed mechanism.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/9f700bae254836c464b083236ef2dfbafc83fdb0

Citations in the corpus

• Forward and Spot Exchange Rates in a Multi-Currency World* (2018, unknown): “…explicit models of either permanent or highly persistent asymmetries in currency risk premia include Martin (2012), Hassan (2013), Maggiori (2017), Richmond (2016), and Ready, Roussanov, and Ward (2017).6 Another strand of the literature has connected persistent currency risk premia with shocks…”