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International Asset Excess Returns and Multivariate Conditional Volatilities

  • Thomas C. Chiang
  • Sheng-Yung Yang
Article

Abstract

This paper constructs a multivariate model in relating multi-asset excess returns to their conditional variances. Applying weekly data to investigate the foreign-exchange risk premium, the evidence from a multivariate GARCH model shows that the foreign-exchange excess returns are significantly correlated with economic fundamentals such as the real interest-rate differential, long-short interest-rate spread differential, and equity-premium differential. The evidence also suggests that foreign-exchange excess returns are not independent of the conditional variances of these fundamental variables, supporting the time-varying risk-premium hypothesis.

Key words

exchange rate risk time-varying risk premiums international asset pricing multivariate GARCH model 

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Copyright information

© Springer Science + Business Media, Inc. 2005

Authors and Affiliations

  1. 1.Department of FinanceDrexel UniversityPhiladelphiaUSA
  2. 2.Department of FinanceNational Chung Hsing UniversityTaichungTaiwan ROC

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