6533b859fe1ef96bd12b75bb
RESEARCH PRODUCT
Corruption, Carry Trades, and the Cross Section of Currency Returns
Jari-pekka HeinonenKlaus GrobysKlaus Grobyssubject
Consumption (economics)CurrencyCorruptionFinancial economicsStochastic discount factorCarry (investment)media_common.quotation_subjectEconomicsPortfolioForeign exchange riskRecessionmedia_commondescription
This is the first paper to explore the effects of perceived corruption on the FX market. It finds that the currencies of countries perceived to suffer from high levels of corruption generate statistically significantly lower returns than the currencies of countries perceived to have low levels of corruption. Moreover, the portfolio spread is highly correlated with NBER recessions and U.S. consumption growth of nondurable goods. Interestingly, stochastic discount factor model analysis reveals that the portfolio spread is useful for pricing the cross section of currency returns, even when controlling for standard FX risk factors.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2017-01-01 | SSRN Electronic Journal |