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Currency Value
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DOI：10.1093/rfs/hhw067.png)
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Abstract
En 中文
We assess the properties of currency value strategies based on real exchange rates. We find that real exchange rates have predictive power for the cross-section of currency excess returns. However, adjusting real exchange rates for key country-specific fundamentals (productivity, the quality of export goods, net foreign assets, and output gaps) better isolates information related to the currency risk premium. In turn, the resultant measure of currency value displays considerably stronger predictive power for currency excess returns. Finally, the predictive information content in our currency value measure is distinct from that embedded in popular currency strategies, such as carry and momentum.
Keywords:
PURCHASING POWER PARITY
REAL EXCHANGE-RATES
MONETARY-POLICY
FOREIGN-ASSETS
TAYLOR RULES
CARRY TRADE
RISK
MARKETS
PREMIA
RETURNS
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