Author： Chiang Thomas Yang Sheng-Yung
Publisher： Springer Publishing Company
ISSN： 0924-865X
Source： Review of Quantitative Finance and Accounting, Vol.24, Iss.3, 2005-05, pp. : 295-312
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Abstract
This paper constructs a multivariate model in relating multi-asset excess returns to their conditional variances. Applying weekly data to investigate the foreign-exchange risk premium, the evidence from a multivariate GARCH model shows that the foreign-exchange excess returns are significantly correlated with economic fundamentals such as the real interest-rate differential, long-short interest-rate spread differential, and equity-premium differential. The evidence also suggests that foreign-exchange excess returns are not independent of the conditional variances of these fundamental variables, supporting the time-varying risk-premium hypothesis.
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