We test Uncovered Interest Parity (UIP) using LIBOR interest rates for a wide range of maturities. In contrast to other markets, LIBOR markets have minimal frictions which could lead to rejecting UIP. Using panel unit root test suggested by Palm, Smeekes, and Urbain (2010) and cointegration...

On September 3-4, 2009 SUERF and Utrecht University School of Economicsorganized the Colloquium "The Quest for Stability" in Utrecht, the Netherlands. The papers included in this SUERF Study are based on contributions to the Colloquium.

We empirically test Gabaix and Maggiori (2015)’s prediction that currencies are repriced by the country’s external capital dependence when financial constraints of FX intermediaries change. Using solvency indicators, we develop a novel intermediary constraints index capturing riskbearing...

The position of countries in a network of external portfolio investments provides a novel macroeconomic characteristic to explain violations of uncovered interest rate parity. I derive a network centrality measure, where central countries are highly integrated with key suppliers of tradeable...

We test Uncovered Interest Parity (UIP) using LIBOR interest rates for a wide range of maturities. In contrast to other markets, LIBOR markets have minimal frictions which could lead to rejecting UIP. Using panel unit root test suggested by Palm, Smeekes, and Urbain (2010) and cointegration...

Over 85% of all foreign exchange (FX) transactions involve the US dollar. I show that the US dollar dominates FX trading volume because of strategic avoidance of price impact. To demonstrate this, I leverage the fact that non-dollar currency pairs can be traded indirectly by using the US dollar...

We establish the out-of-sample predictability of monthly exchange rate changes via machine learning techniques based on 70 predictors capturing country characteristics, global variables, and their interactions. To guard against overfitting, we use the elastic net to estimate a high-dimensional...

We find that an option-based equity tail risk factor is priced in the cross section of currency returns. Currencies highly exposed to this factor offer a low risk premium because they hedge against equity tail risk. In a reduced-form model, we show that a long-short portfolio that buys...

We examine 24 global factor premiums across the main asset classes via replication and new-sample evidence spanning 217 years of data. Replication yields ambiguous evidence within a unified testing framework with methods that account for p-hacking. The new-sample evidence reveals that the large...

We investigate the information contained in foreign exchange (FX) volume using a novel dataset from the over-the-counter market. We find volume helps predict next day currency returns and is economically valuable for currency investors. Predictability implies a stronger currency return reversal...