A Fiscal Theory of the Currency Risk Premium and of Sterilized Intervention

2002 ◽  
Author(s):  
Michael Kumhof ◽  
Stijn Van Nieuwerburgh
Keyword(s):  
Risk Premium ◽  
Currency Risk ◽  
Sterilized Intervention

scholarly journals A Fiscal Theory of the Currency Risk Premium and of Sterilized Intervention

2002 ◽  
Vol 02 (29) ◽  
pp. 1 ◽  
Author(s):  
Michael Kumhof ◽  
Stijn van Nieuwerburgh ◽  
◽  
Keyword(s):  
Risk Premium ◽  
Currency Risk ◽  
Sterilized Intervention

A Credit-Based Theory of the Currency Risk Premium

2019 ◽  
Author(s):  
Pasquale Della Corte ◽  
Alexandre Jeanneret ◽  
Ella Patelli
Keyword(s):  
Risk Premium ◽  
Currency Risk

The Introduction of the Euro and the Currency Risk Premium

2006 ◽  
Author(s):  
Olasupo Olusi ◽  
Antonios Antoniou ◽  
Krishna N. Paudyal
Keyword(s):  
Risk Premium ◽  
Currency Risk

scholarly journals The Impact of Currency Risk on Firm’s Value in Emerging Countries

2019 ◽  
Vol 13 (1) ◽  
pp. 7-27
Author(s):  
Ilia Kuchin ◽  
Mariia Elkina ◽  
Yury Dranev
Keyword(s):  
South Africa ◽  
Exchange Rate ◽  
Risk Premium ◽  
Emerging Countries ◽  
Equity Capital ◽  
Cost Of Equity ◽  
Currency Risk ◽  
Return On Equity ◽  
The Cost ◽  
The Impact

This study is dedicated to estimating the impact of currency risk on the cost of equity in Brazil, Russia, India and South Africa. Our contribution to the literature is that we obtain further evidence on pricing of exchange rate risk in developing countries which for now is quite scarce. These motivates our research which is dedicated to BRICS capital markets with Chinese stock market excluded since it is heavily regulated. The aim of the research is to determine whether in emerging countries stock markets currency risk is a significant factor that influence cost of equity capital of a company. Changes in the value of exchange rate can impact cash flows of a firm and their riskiness, hence, the value of the company. In our research we will discuss the influence of exchange rate movements on the value of the firm through their impact on the cost of equity. Specifically, we investigate whether companies that report substantial currency gains or losses have to pay a higher required return on equity. Furthermore, in this study we take an attempt to estimate currency risk premia for exposure to appreciation and depreciation of currency separately and identify possible differences. For each country three models that extend Fama-French Three Factor Model by incorporating currency risk are estimated. We used equal-weighted portfolio approach to construction currency risk factors. They are estimated using information about the ratio of currency gains to sales or the magnitude of covariation between equity returns and exchange rate changes. In the second case appreciation and depreciation of domestic currency against US dollar is considered separately. Results indicate that in Russia firms which report substantial currency losses pay a positive risk premium, while in Brazil, India and South Africa companies with significantly positive or negative currency gains pay a lower required return on equity than firms with almost zero currency gains. Finally, we are trying to explain estimation results using sectoral breakdown of product exports in each country of data sample.

scholarly journals Tendenciosidade do Mercado Futuro de Câmbio: Risco Cambial ou Erros Sistemáticos de Previsão?

2006 ◽  
Vol 4 (2) ◽  
pp. 123
Author(s):  
Daniel Chrity ◽  
Márcio G. P. Garcia ◽  
Marcelo Cunha Medeiros
Keyword(s):  
International Finance ◽  
Risk Premium ◽  
Futures Market ◽  
Forward Rate ◽  
Prediction Errors ◽  
Spot Rate ◽  
Currency Risk ◽  
Future Change ◽  
The Future ◽  
The Difference

The forward exchange rate is widely used in international finance whenever the analysis of the expected depreciation is needed. It is also used to identify currency risk premium. The difference between the spot rate and the forward rate is supposed to be a predictor of the future movements of the spot rate. This prediction is hardly precise. The fact that the forward rate is a biased predictor of the future change in the spot rate can be attributed to a currency risk premium. The bias can also be attributed to systematic errors of the future depreciation of the currency. This paper analyzes the nature of the risk premium and of the prediction errors in using the forward rate. It will look into the efficiency and rationality of the futures market in Brazil from April 1995 to December 1998, a period of controled exchange rates.

Was the Classical Gold Standard Credible on the Periphery? Evidence from Currency Risk

2015 ◽  
Vol 75 (2) ◽  
pp. 479-511 ◽  
Author(s):  
Kris James Mitchener ◽  
Marc D. Weidenmier
Keyword(s):  
Financial Markets ◽  
International Finance ◽  
Risk Premium ◽  
Gold Standard ◽  
Fixed Effects ◽  
Emerging Market ◽  
Risk Premia ◽  
Currency Risk ◽  
Fixed Effects Panel Regression ◽  
Specific Factors

We use a standard metric from international finance, the currency risk premium, to assess the credibility of fixed exchange rates during the classical gold standard era. Theory suggests that a completely credible and permanent commitment to join the gold standard would have zero currency risk or no expectation of devaluation. We find that, even five years after a typical emerging-market country joined the gold standard, the currency risk premium averaged at least 220 basis points. Fixed-effects, panel-regression estimates that control for a variety of borrower-specific factors also show large and positive currency risk premia. In contrast to core gold standard countries, such as France and Germany, the persistence of large premia, long after gold standard adoption, suggest that financial markets did not view the pegs in emerging markets as credible and expected that they devaluation.

scholarly journals Pricing Currency Risk in Two Interlinked Stock Markets

2016 ◽  
Vol 1 (1) ◽  
pp. 16
Author(s):  
Jan Antell ◽  
Mika Vaihekoski
Keyword(s):  
Exchange Rate ◽  
Risk Premium ◽  
Stock Markets ◽  
Exchange Rate Regime ◽  
Multivariate Garch ◽  
Currency Risk ◽  
Practical Applications ◽  
Rate Effects ◽  
Floating Exchange Rate

We investigate the role of currency risk on stock markets in two interlinked Nordic countries exhibiting a gradual move from fixed to floating exchange rate regime. Tests are conducted for a conditional asset pricing model using the Ding and Engle (2001) specification which allows estimation of multivariate GARCH-in mean models. Using a sample period from 1970 to 2009, we find that the currency risk is priced in both stock markets, and that the price and the risk premium are lower after the flotation of the currencies. We also find some evidence of crosscountry exchange rate effects. Our model has many practical applications and can easily be applied to study other countries, different asset classes, or industries that are closely connected.

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