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The Term Structure of Currency Carry Trade Risk Premia / Hanno Lustig, Andreas Stathopoulos, Adrien Verdelhan.
- Format:
- Book
- Author/Creator:
- Lustig, Hanno.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w19623.
- NBER working paper series no. w19623
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2013.
- Summary:
- Fixing the investment horizon, the returns to currency carry trades decrease as the maturity of the foreign bonds increases. The local currency term premia, which increase with the maturity, offset the currency risk premia. The time-series predictability of foreign bond returns in dollars similarly declines with the bonds' maturities. Leading no-arbitrage models in international finance cannot match the downward term structure of currency carry trade risk premia. We derive a simple preference-free condition that no-arbitrage models need to satisfy to match the carry trade risk premia on long term bonds.
- Notes:
- Print version record
- November 2013.
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