forward premia on monthly exchange rate returns in a framework that allows for volatility timing. We implement Bayesian … stochastic volatility innovations; and (ii) strategies based on combined forecasts yield large economic gains over the random …

We investigate the relation between global foreign exchange (FX) volatility risk and the cross-section of excess … FX volatility and thus deliver low returns in times of unexpected high volatility, when low interest rate currencies … provide a hedge by yielding positive returns. Our proxy for global FX volatility risk captures more than 90% of the cross …