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Home | News | Paper by Xiao Xiao and Zhenzhen Fan published in the Journal of Financial Economics
News | July 02, 2021

Paper by Xiao Xiao and Zhenzhen Fan published in the Journal of Financial Economics

The article “Equity tail risk and currency risk premiums" by candidate fellow and alumna Xiao Xiao (University of Amsterdam) and alumna Zhenzhen Fan (University of Manitoba, Canada) has been published online in the Journal of Financial Economics.

Paper by Xiao Xiao and Zhenzhen Fan published in the Journal of Financial Economics
Abstract

We find that an option-based equity tail risk factor is priced in the cross section of currency returns; more exposed currencies offer a low risk premium because they hedge against equity tail risk. A portfolio that buys currencies with high equity tail beta and shorts those with low beta extracts the global component in the tail factor. The estimated price of risk of this novel global factor is consistently negative in currency carry and momentum portfolios, and in portfolios of other asset classes, suggesting that excess returns of these strategies can be partially understood as compensations for global tail risk.

View publication here.

Article Citation:
Zhenzhen Fan, Juan M.Londono, XiaoXiao, “Equity tail risk and currency risk premiums", Journal of Financial Economics , published online May 20, 2021, doi.org/10.1016/j.jfineco.2021.05.020.