Sovereign Risk and Currently Returns

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

Publikation: Working paperForskning

Abstrakt

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.
OriginalsprogEngelsk
Udgivelses stedwww
UdgiverSSRN: Social Science Research Network
Antal sider54
StatusUdgivet - 2013

Emneord

  • Sovereign risk
  • currency options
  • volatility trading
  • currency returns
  • currency risk
  • CDS spreads

Citationsformater

Della Corte, P., Sarno, L., Schmeling, M., & Wagner, C. (2013). Sovereign Risk and Currently Returns. SSRN: Social Science Research Network. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2354935