We estimate the exposure of emerging-market companies to fluctuations in their domestic exchange rates. We use an instrumental-variable approach that identifies the total exposure of a company to exchange-rate movements, yet abstracts from the influence of confounding macroeconomic shocks. In...

This paper proposes a new risk factor based on a multi-country's trading imbalance network to explain foreign exchange rate fluctuations and currency risk premia associated with a currency carry trade strategy. We build a directed in-degree trading network of global countries linked by their...

In international portfolios investors move away from domestic-only investing and diversify their allocation of assets by foreign equities. The exposure to foreign currencies adds an additional risk component which is managed in the currency overlay. To achieve an ideal weighting of the...

Currency carry trading presents a widespread trading strategy and refers to the forward premium puzzle. Investors borrow low-yielding currencies with the aim to invest in high-yielding ones in order to benefit from arbitrage opportunities. This implies that a one-to-one relationship does not...

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...

This paper addresses the predictive ability of currency volatility risk premium - the difference between an implied and a realized volatility - over US dollar exchange rates using a time series perspective. The intuition is that, when risk aversion sentiment increases, the market quickly...

In this paper we confront the data with the financial-market folk wisdom that monetary policy is one of the key drivers of nominal exchange rates. Focusing on measures of conventional and unconventional monetary policy, we find that monetary policy surprises and changes in expectations about...

We investigate whether unemployment fluctuations generate predictability in the cross-section of currency excess returns. We find that currencies with lower growth in the unemployment rate appreciate while currencies with higher growth in the unemployment rate depreciate. As a result, an...

We find important differences in dollar-based and dollar-neutral G10 carry trades. Dollar-neutral trades have positive average returns, are highly negatively skewed, are correlated with risk factors, and exhibit considerable downside risk. In contrast, a diversified dollar-carry portfolio has a...

We show that a global imbalance risk factor that captures the spread in countries' external imbalances and their propensity to issue external liabilities in foreign currency explains the cross-sectional variation in currency excess returns. The economic intuition is simple: net debtor countries...