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Consumption growth, uncovered equity parity and the cross-section of returns on foreign currencies


Nitschka, Thomas (2007). Consumption growth, uncovered equity parity and the cross-section of returns on foreign currencies. Working paper series / Institute for Empirical Research in Economics No. 340, University of Zurich.

Abstract

Lagged foreign stock returns in excess of the U.S. stock market return are informative aboutnquarterly exchange rate movements. A past high foreign stock return relative to the U.S. signals a foreign currency depreciation and hence low returns on the foreign currency.nConditional on stock return differentials, the consumption-based CAPM (CCAPM) explains the cross-sectional dispersion in U.S. dollar exchange rates. The CCAPM captures more than 40 percent of the variation in foreign currency returns scaled with the respective stock returnndifferential on a country-by-country basis.

Abstract

Lagged foreign stock returns in excess of the U.S. stock market return are informative aboutnquarterly exchange rate movements. A past high foreign stock return relative to the U.S. signals a foreign currency depreciation and hence low returns on the foreign currency.nConditional on stock return differentials, the consumption-based CAPM (CCAPM) explains the cross-sectional dispersion in U.S. dollar exchange rates. The CCAPM captures more than 40 percent of the variation in foreign currency returns scaled with the respective stock returnndifferential on a country-by-country basis.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Language:English
Date:November 2007
Deposited On:29 Nov 2011 22:47
Last Modified:12 Aug 2017 13:04
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html

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