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286th Biweekly Academic Forum

Published:2019-07-03  Views:

 

Topic: A “Bad Beta, Good Beta” Anatomy of Currency Risk Premiums and Trading Strategies

 

Speaker: I-Hsuan Ethan Chiang is Associate Professor in Finance of University of North Carolina at Charlotte, holding a doctoral degree in Economics from Boston University since 2009. In 2008, he began to teach at University of North Carolina at Charlotte and earned tenured associate professor of finance in 2017. His main research and teaching directions are Asset Pricing, Securities Investment Management, Fixed Income Securities and Financial Econometrics. His many papers have been published in leading international economics and management academic journals, including “Journal of Finance”, “Journal of Banking & Finance”, “Journal of Empirical Finance”, “Review of Asset Pricing Studies” and “Managerial Finance”.

 

Time: 12:30-13:30, Friday, July 5, 2019

 

Venue: Room 302, Main Teaching Building, Shahe Campus of CUFE

 

Moderator: Associate Professor Xu WEI, School of Finance, Central University of Finance and Economics

Abstract: We test a two-beta currency pricing model that features betas with risk-premium news and real-rate news of the currency market. Unconditionally, beta with currency market risk-premium news is “bad” because of significantly positive price of risk (2.52% per year); beta with global real-rate news is “good” due to nearly zero or negative price of risk. The price of risk-premium beta risk is counter-cyclical, while the price of the real-rate beta risk is pro-cyclical. Most prevailing currency trading strategies either have excessive “bad beta” or too little “good beta,” failing to deliver abnormal performance. Our empirical results can be delivered by a no-arbitrage model with precautionary savings and a pricing kernel characterized by two separate global shocks. 



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