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value premium is larger in "bad times," due to time variation in risk preferences; (c) the unconditional CAPM fails, because … conditional CAPM and a Fama and French (1993) HML factor outperform the unconditional CAPM …
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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...
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