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Conditional Risk Premia in Currency Markets and Other Asset Classes / Martin Lettau, Matteo Maggiori, Michael Weber.
- Format:
- Book
- Author/Creator:
- Lettau, Martin.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w18844.
- NBER working paper series no. w18844
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2013.
- Summary:
- The downside risk CAPM (DR-CAPM) can price the cross section of currency returns. The market-beta differential between high and low interest rate currencies is higher conditional on bad market returns, when the market price of risk is also high, than it is conditional on good market returns. Correctly accounting for this variation is crucial for the empirical performance of the model. The DR-CAPM can jointly rationalize the cross section of equity, equity index options, commodity, sovereign bond and currency returns, thus offering a unified risk view of these asset classes. In contrast, popular models that have been developed for a specific asset class fail to jointly price other asset classes.
- Notes:
- Print version record
- February 2013.
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