International Asset Excess Returns and Multivariate Conditional Volatilities |
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Authors: | Email author" target="_blank">Thomas?C?ChiangEmail author Sheng-Yung?Yang |
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Institution: | (1) Department of Finance, Drexel University, 3141 Chestnut Street, Philadelphia, PA 19104, USA;(2) Department of Finance, National Chung Hsing University, 250 Kuo Kuang Road, Taichung, 402, Taiwan ROC |
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Abstract: | This paper constructs a multivariate model in relating multi-asset excess returns to their conditional variances. Applying weekly data to investigate the foreign-exchange risk premium, the evidence from a multivariate GARCH model shows that the foreign-exchange excess returns are significantly correlated with economic fundamentals such as the real interest-rate differential, long-short interest-rate spread differential, and equity-premium differential. The evidence also suggests that foreign-exchange excess returns are not independent of the conditional variances of these fundamental variables, supporting the time-varying risk-premium hypothesis. |
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Keywords: | exchange rate risk time-varying risk premiums international asset pricing multivariate GARCH model |
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