International Asset Excess Returns and Multivariate Conditional Volatilities

International Asset Excess Returns and Multivariate Conditional Volatilities 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. Review of Quantitative Finance and Accounting Springer Journals

International Asset Excess Returns and Multivariate Conditional Volatilities

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Kluwer Academic Publishers
Copyright © 2005 by Springer Science + Business Media, Inc.
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
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  • Characterizing Predictable Components in Excess Returns on Equity and Foreign Exchange Markets
    Bekaert, G.; Hodrick, R. J.

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