more than doubled at the same time. We also provide a general equilibrium model of stop-loss traders and non-stop traders …

Many recent papers have investigated the role played by volatility in determining the cross-section of currency returns …. This paper employs two time-varying factor models: a threshold model and a Markov-switching model to price the excess … returns from the currency carry trade. We show that the importance of volatility depends on whether the currency markets are …