Current Account Uncertainty and Currency Premia

81 Pages Posted: 1 Mar 2017 Last revised: 7 Oct 2022

See all articles by Pasquale Della Corte

Pasquale Della Corte

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Aleksejs Krecetovs

Imperial College London

Date Written: June 8, 2022

Abstract

We empirically study the relationship between currency excess returns and current account uncertainty, measured as forecast dispersion. We find that investment currencies deliver low returns, whereas funding currencies offer a hedge when current account uncertainty is unexpectedly high. Moreover, an increase in current account uncertainty is associated with higher expected future excess returns on investment currencies. This mechanism is consistent with the recent advances in exchange rate theory based on capital flows in imperfect financial markets.

Keywords: analyst forecasts, carry trade, currency risk premium, global imbalances, macro uncertainty,

JEL Classification: F14, F31, F32, F34, G12, G15.

Suggested Citation

Della Corte, Pasquale and Krecetovs, Aleksejs, Current Account Uncertainty and Currency Premia (June 8, 2022). Available at SSRN: https://ssrn.com/abstract=2924766 or http://dx.doi.org/10.2139/ssrn.2924766

Pasquale Della Corte

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London, SW7 2AZ
United Kingdom
+44(0)20 759 49331 (Phone)

HOME PAGE: http://sites.google.com/view/pasqualedellacorte

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Aleksejs Krecetovs (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
701
Abstract Views
3,673
Rank
68,128
PlumX Metrics