TY - JOUR
T1 - Equity risk premia and the pricing of foreign exchange risk
AU - Korajczyk, Robert A.
AU - Viallet, Claude J.
N1 - Funding Information:
Corremondence to: R.A. Koraiczvk, Kellogg Graduate School of Management, University, 2001 Sheridan Road,-Eianston, 1~60208-2006, USA. *We wish to thank David Backus. Tim Bollerslev, Wayne Ferson, Karen Lewis, the referees and editors, and seminar participants at Northwestern University, Stanford University, University of Southern California, and the NBER Workshop on International Macro and Finance. This research was completed thanks to the financial support of INSEAD.
PY - 1992/11
Y1 - 1992/11
N2 - We investigate the relation between the risk premia observed in forward foreign exchange markets and international equity markets using the Arbitrage Pricing Theory. If returns on well- diversified equity portfolios explain movements in agents' intertemporal marginal rate of substitution, then the time variation in forward risk premia should be explained by the forward contract's sensitivity to the equity portfolios and the time variation in the risk premia of those portfolios. We find that equity and forward risk premia are related, but that forward contracts have a component of their conditional mean returns unexplained by their relation to equity factors.
AB - We investigate the relation between the risk premia observed in forward foreign exchange markets and international equity markets using the Arbitrage Pricing Theory. If returns on well- diversified equity portfolios explain movements in agents' intertemporal marginal rate of substitution, then the time variation in forward risk premia should be explained by the forward contract's sensitivity to the equity portfolios and the time variation in the risk premia of those portfolios. We find that equity and forward risk premia are related, but that forward contracts have a component of their conditional mean returns unexplained by their relation to equity factors.
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U2 - 10.1016/0022-1996(92)90001-Z
DO - 10.1016/0022-1996(92)90001-Z
M3 - Article
AN - SCOPUS:38249010175
VL - 33
SP - 199
EP - 219
JO - Journal of International Economics
JF - Journal of International Economics
SN - 0022-1996
IS - 3-4
ER -