The world price of foreign exchange risk

Article Abstract:

Departures from purchasing power parity imply that different countries have different prices for goods when a common numeraire is used. Stochastic changes in exchange rates are associated with changes in these prices and constitute additional sources of risk in asset pricing models. This article investigates whether exchange rate risks are priced in international asset markets using a conditional approach that allows for time variation in the rewards for exchange rate risk. The results for equities and currencies of the world's four largest equity markets support the existence of foreign exchange risk premia. (Reprinted by permission of the publisher.)

Foreign exchange, Pricing

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Extreme correlation of international equity markets

Article Abstract:

This article evaluates international equity market correlations in volatile times using 'extreme value theory' model. The authors find extreme correlation for a wide variety of return distributions, and that it is not related to market volatility but rather by market trend, with correlation increasing in bear markets but not in bull markets.

World, Evaluation, Securities, Markets (Economics), International economic relations

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On the term structure of default premia in the swap and LIBOR markets

Article Abstract:

Research of default risk in the swap market shows significant difference between the LIBOR and swap rates. Corporate bonds carry corporate risk, yet swap contracts have no such risk, so the term structure of swap rates cannot reflect the borrowing cost of a LIBOR credit quality issuer.

United States, Treasury securities, Swaps (Finance), London Interbank Offered Rate

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