A1126
Title: Distributional asymmetries and currency returns
Authors: Josef Kurka - UTIA AV CR, v.v.i. (Czech Republic) [presenting]
Abstract: Numerous strands of literature have tried to explain the empirical failure of uncovered interest rate parity. The aim is to provide a risk-based explanation of this phenomenon that should vastly contribute to the currency pricing literature. The Extreme Volatility Risk Factor building on the crucial information for both stocks and currency pricing (e.g. the peso problems), is proposed that are contained in the tails of the distribution. Using a dataset of the 19 largest currencies, the time series of cross-sectional Average, Extreme Low and Extreme High Volatility is constructed. Preliminary empirical results uncover that especially Extreme High Volatility is priced in the cross-section of currency returns on top of Average Idiosyncratic Volatility.
