Sovereign Risk and Currency Returns

Pasquale Della Corte; Lucio Sarno; Maik Schmeling; Christian Wagner

Sovereign Risk and Currency Returns

Pasquale Della Corte, Lucio Sarno, Maik Schmeling, Christian Wagner

Institut for Finansiering

Publikation: Konferencebidrag › Paper › Forskning › peer review

Abstract

We empirically investigate the relation between sovereign risk and exchange rates for a broad set of currencies. An increase in the credit default swap (CDS) spread of a country is accompanied by a significant depreciation of the exchange rate. More generally, CDS spread changes have substantial explanatory power for currency returns which is largely driven by shocks to global credit risk. Consistent with the notion that sovereign risk is priced, we find that a country's exposure to global credit risk forecasts excess returns to trading exchange rates as well as to trading on the volatility, skewness, and kurtosis of currency returns.

Originalsprog	Engelsk
Publikationsdato	16 jul. 2014
Antal sider	45
Status	Udgivet - 16 jul. 2014
Begivenhed	The 41th European Finance Association Annual Meeting (EFA 2014) - Palazzo dei Congressi, Lugano, Schweiz Varighed: 27 aug. 2014 → 30 aug. 2014 Konferencens nummer: 41 http://www.efa2014.org/

Konference

Konference	The 41th European Finance Association Annual Meeting (EFA 2014)
Nummer	41
Lokation	Palazzo dei Congressi
Land/Område	Schweiz
By	Lugano
Periode	27/08/2014 → 30/08/2014
Internetadresse	http://www.efa2014.org/

Emneord

Sovereign risk
CDS spreads
Currency risk
Carry trades
Volatility trading
Options

Adgang til dokumentet

https://www.conftool.com/efa2014/index.php/EFA_2014-1520-Della_Corte-Sovereign_Risk_and_Currency_Returns.pdf?page=downloadPaper&filename=EFA_2014-1520-Della_Corte-Sovereign_Risk_and_Currency_Returns.pdf&form_id=1520&form_version=final

Handle.net

Persistent link

Citationsformater

Della Corte, P., Sarno, L., Schmeling, M., & Wagner, C. (2014). Sovereign Risk and Currency Returns. Paper præsenteret på The 41th European Finance Association Annual Meeting (EFA 2014), Lugano, Schweiz. https://www.conftool.com/efa2014/index.php/EFA_2014-1520-Della_Corte-Sovereign_Risk_and_Currency_Returns.pdf?page=downloadPaper&filename=EFA_2014-1520-Della_Corte-Sovereign_Risk_and_Currency_Returns.pdf&form_id=1520&form_version=final

@conference{dd7911edc71943099311a9958385256a,

title = "Sovereign Risk and Currency Returns",

abstract = "We empirically investigate the relation between sovereign risk and exchange rates for a broad set of currencies. An increase in the credit default swap (CDS) spread of a country is accompanied by a significant depreciation of the exchange rate. More generally, CDS spread changes have substantial explanatory power for currency returns which is largely driven by shocks to global credit risk. Consistent with the notion that sovereign risk is priced, we find that a country's exposure to global credit risk forecasts excess returns to trading exchange rates as well as to trading on the volatility, skewness, and kurtosis of currency returns.",

keywords = "Sovereign risk, CDS spreads, Currency risk, Carry trades, Volatility trading, Options",

author = "{Della Corte}, Pasquale and Lucio Sarno and Maik Schmeling and Christian Wagner",

year = "2014",

month = jul,

day = "16",

language = "English",

note = "The 41th European Finance Association Annual Meeting (EFA 2014) ; Conference date: 27-08-2014 Through 30-08-2014",

url = "http://www.efa2014.org/",

}

Della Corte, P, Sarno, L, Schmeling, M & Wagner, C 2014, 'Sovereign Risk and Currency Returns', Paper fremlagt ved The 41th European Finance Association Annual Meeting (EFA 2014), Lugano, Schweiz, 27/08/2014 - 30/08/2014. <https://www.conftool.com/efa2014/index.php/EFA_2014-1520-Della_Corte-Sovereign_Risk_and_Currency_Returns.pdf?page=downloadPaper&filename=EFA_2014-1520-Della_Corte-Sovereign_Risk_and_Currency_Returns.pdf&form_id=1520&form_version=final>

TY - CONF

T1 - Sovereign Risk and Currency Returns

AU - Della Corte, Pasquale

AU - Sarno, Lucio

AU - Schmeling, Maik

AU - Wagner, Christian

N1 - Conference code: 41

PY - 2014/7/16

Y1 - 2014/7/16

N2 - We empirically investigate the relation between sovereign risk and exchange rates for a broad set of currencies. An increase in the credit default swap (CDS) spread of a country is accompanied by a significant depreciation of the exchange rate. More generally, CDS spread changes have substantial explanatory power for currency returns which is largely driven by shocks to global credit risk. Consistent with the notion that sovereign risk is priced, we find that a country's exposure to global credit risk forecasts excess returns to trading exchange rates as well as to trading on the volatility, skewness, and kurtosis of currency returns.

AB - We empirically investigate the relation between sovereign risk and exchange rates for a broad set of currencies. An increase in the credit default swap (CDS) spread of a country is accompanied by a significant depreciation of the exchange rate. More generally, CDS spread changes have substantial explanatory power for currency returns which is largely driven by shocks to global credit risk. Consistent with the notion that sovereign risk is priced, we find that a country's exposure to global credit risk forecasts excess returns to trading exchange rates as well as to trading on the volatility, skewness, and kurtosis of currency returns.

KW - Sovereign risk

KW - CDS spreads

KW - Currency risk

KW - Carry trades

KW - Volatility trading

KW - Options

M3 - Paper

T2 - The 41th European Finance Association Annual Meeting (EFA 2014)

Y2 - 27 August 2014 through 30 August 2014

ER -