We construct a multi-country affine term structure model that contains unspanned macroeconomic and foreign exchange risks. The canonical version of the model is derived and is shown to be easy to estimate. We show that it is important to impose restrictions (including global asset pricing, carry...

We sort currencies by countries' consumption growth over the past four quarters. Currency portfolios of countries experiencing consumption booms have higher Sharpe ratios than those of countries going through a consumption-based recession. A carry strategy that goes short in countries that are...

The use of futures exchange contracts instead of forwards completes the maturity spectrum of the correlation between the spot yield and the premium. We find that the forward premium puzzle (FFP) depends significantly on the maturity horizon of the futures contract and the choice of sampling...

We identify a global risk factor in the cross-section of implied volatility returns in currency markets. A zero-cost strategy that buys forward volatility agreements with downward sloping implied volatility curves and sells those with upward slopes - volatility carry strategy - generates...

This paper reviews the empirical literature on heterogeneous beliefs and asset price dynamics that challenges the traditional rational agent framework. Emphasis is given to the validation and estimation of (dynamic) heterogeneous agent models that have their roots in the agent-based literature....

This paper investigates the importance of commodity prices for the returns of currency carry trade portfolios. We adopt a recently developed empirical factor model to capture commodity commonalities and heterogeneity. Agricultural material and metal price risk factors are found to have...

We start by documenting large differences in bitcoin prices across exchanges located in different countries, or for different fiat currency pairs. For the most reputable exchanges, and after carefully accounting for all the transaction costs and limitations to trade, we find that costly...

We show that excess returns to the carry trade can be interpreted as compensation for foreign exchange dealers' capital risk. Given that the top market makers in foreign exchange are at the heart of the market's information aggregation process we also suggest that it is their marginal value of...

This paper examines the conditional time-varying currency betas from five developed markets and four emerging markets. We employ a modified trivariate BEKK-GARCH-in-mean model of Engle and Kroner (1995) to estimate the time-varying conditional variance and covariance of returns of stock index,...

I propose a model-free method to derive forward-looking betas to currency portfolios from cross-pair currency options. Using the dollar factor --- an equal-weighted basket of foreign currencies against the U.S. dollar --- as the systematic factor, I find that these option-implied betas are...