Understanding the price of volatility risk in carry trades



Ahmed, Shamim ORCID: 0000-0003-3712-5213 and Valente, Giorgio
(2015) Understanding the price of volatility risk in carry trades. Journal of Banking & Finance, 57. 118 - 129.

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Abstract

This paper investigates the cross-sectional pricing ability of the short- and long-run components of global foreign exchange (FX) volatility for carry trade returns. We find a negative and statistically significant factor risk price for the long-run component, but no significant pricing effect due to the short-run volatility component. We also document that the dynamics of the long-run component of global FX volatility are related to US macroeconomic fundamentals. Our results are robust to various parametrizations of the volatility models used to obtain the volatility components and they are invariant to alternative asset pricing testing methodologies and sample periods.

Item Type: Article
Depositing User: Symplectic Admin
Date Deposited: 17 Jun 2019 08:50
Last Modified: 09 Jan 2021 03:29
DOI: 10.1016/j.jbankfin.2015.04.002
Related URLs:
URI: https://livrepository.liverpool.ac.uk/id/eprint/3045884