12 results found
Della Corte P, Riddiough SJ, Sarno L, 2016, Currency Premia and Global Imbalances, Review of Financial Studies, Vol: 29, Pages: 2161-2193, ISSN: 1465-7368
We show that a global imbalance risk factor that captures the spread in countries’ external imbalances and their propensity to issue external liabilities in foreign currency explains the cross-sectional variation in currency excess returns. The economic intuition is simple: net debtor countries offer a currency risk premium to compensate investors willing to finance negative external imbalances because their currencies depreciate in bad times. This mechanism is consistent with exchange rate theory based on capital flows in imperfect financial markets. We also find that the global imbalance factor is priced in cross-sections of other major asset markets.
Della Corte P, Ramadorai T, Sarno L, 2016, Volatility risk premia and exchange rate predictability, Journal of Financial Economics, Vol: 120, Pages: 21-40, ISSN: 0304-405X
We discover a new currency strategy with highly desirable return and diversification properties, which uses the predictive ability of currency volatility risk premia for currency returns. The volatility risk premium—the difference between expected realized volatility and model-free implied volatility—reflects the costs of insuring against currency volatility fluctuations. The strategy sells high insurance-cost currencies and buys low insurance-cost currencies. A distinctive feature of the strategy’s returns is that they are mainly generated by movements in spot exchange rates instead of interest rate differentials. We explore explanations for the profitability of the strategy, which cannot be understood using traditional risk factors.
Della Corte P, Kosowski R, Wang T, 2015, Market Closure and Short-Term Reversal, SSRN Working paper
Della Corte P, Sarno L, Sestieri G, 2012, The Predictive Information Content of External Imbalances for Exchange Rate Returns: How Much Is It Worth?, Review of Economics and Statistics
Della Corte P, Sarno L, Tsiakas I, 2012, Volatility and Correlation Timing in Active Currency Management, Handbook of Exchange Rates, Editors: James, Sarno, Marsh, (forthcoming), Publisher: Wiley
Della Corte P, Tsiakas I, 2012, Statistical and Economic Methods for Evaluating Exchange Rate Predictability, Handbook of Exchange Rates, Editors: James, Sarno, Marsh, (forthcoming), Publisher: Wiley
Della Corte P, Sarno L, Tsiakas I, 2011, Carry on speculating on the volatility of foreign exchange, Publisher: Vox
Della Corte P, Sarno L, Tsiakas I, 2011, Spot and Forward Volatility in Foreign Exchange, Journal of Financial Economics, Vol: 100, Pages: 496-513
Della Corte P, Sarno L, Valente G, 2010, A Century of Equity Premium Predictability and the Consumption-Wealth Ratio: An International Perspective, Journal of Empirical Finance, Vol: 17, Pages: 313-331
Della Corte P, Sarno L, Tsiakas I, 2009, An Economic Evaluation of Empirical Exchange Rate Models, Review of Financial Studies, Vol: 22, Pages: 3491-3530
Della Corte P, Sarno L, Thornton DL, 2008, The Expectation Hypothesis of the Term Structure of Very Short-term Rates: Statistical Tests and Economic Value, Journal of Financial Economics, Vol: 89, Pages: 158-174
Della Corte P, Sarno L, Tsiakas I, 2008, Can we predict exchange rates? Economic evidence against the random walk model, Publisher: Vox
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