ICEF/LFE Research Seminar by Pasquale Della Corte (Imperial College London)

On Friday, February 26 at 2 pm ICEF and LFE held the Research Seminar in Finance.
Speaker: Pasquale Della Corte (Imperial College London)
Theme: "Macro Uncertainty and Currency Premia" co-authored with Aleksejs Krecetovs

Abstract : This paper studies empirically the relation between macro uncertainty shocks and the cross-section of currency excess returns. We measure uncertainty over macro variables such as current account, inflation rate, short-term interest rate, real economic growth and foreign exchange rate using the cross-sectional dispersion of market participants' expectations from two international surveys of economic forecasts. We find evidence that investment currencies deliver low returns whereas funding currencies offer a hedge when current account uncertainty is unexpectedly high. In contrast, uncertainty over other macro indicators displays no significant relation with the cross-section of currency excess returns. Our results are consistent with a recent theory of exchange rate determination based on capital flows in imperfect financial markets.

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