Intertemporal risk-return trade-off in foreign exchange rates |
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Authors: | Charlotte Christiansen |
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Institution: | CREATES, School of Economics and Management, Aarhus University, Bartholins Alle 10, 8000 Aarhus C, Denmark |
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Abstract: | We investigate the intertemporal risk-return trade-off of foreign exchange (FX) rates for ten currencies quoted against the USD. For each currency, we use three risk measures simultaneously that pertain to that currency; its realized volatility, its realized skewness, and its value-at-risk. We apply monthly FX excess returns and risk measures calculated from daily observations. We find that there is a significant contemporaneous risk-return trade-off for the currencies under investigation. There is no evidence of noncontemporaneous risk-return trade-off. We pay special attention to the risk-return trade-off during the recent financial crisis. |
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Keywords: | JEL classification: F31 G01 G15 |
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