VGSF - WU Vienna - LC

Lars Lochstoer, UCLA Anderson School of Management

online via Zoom 17:30 - 18:45

Organizer VGSF

As part of the ser­ies of the "Fin­ance Re­search Sem­inar", VGSF wel­comes Lars Loch­stoer from UCLA Ander­son School of Man­age­ment to present his re­search pa­per.
Per­sonal Webpage

Pa­per

Pri­cing cur­rency risks

The cur­rency mar­ket fea­tures a re­l­at­ively small cross-sec­tion and con­di­tional ex­pec­ted re­turns can be char­ac­ter­ized by only a few sig­nals – in­terest dif­fer­en­tials, trend and mean-re­ver­sion. We ex­ploit these prop­er­ties to con­struct a con­di­tional pro­jec­tion of the stochastic dis­count factor onto ex­cess re­turns of in­di­vidual cur­ren­cies. Our ap­proach is im­ple­ment­able in real time and prices all cur­ren­cies and prom­in­ent strategies con­di­tion­ally as well as un­con­di­tion­ally. We doc­u­ment that the frac­tion of un­priced risk in these as­sets is at least 85%. Ex­tant ex­plan­a­tions of carry strategies based on in­ter­me­di­ary cap­ital or global volat­il­ity are re­lated to these un­priced com­pon­ents, while con­sump­tion growth is re­lated to the priced com­pon­ent of re­turns.



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