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SUMMARY:Uncovered Interest Parity in the short\, long and very long run (1
  December 2017) - David Chambers\, JBS and Emile Marin\, Faculty of Econom
 ics
DTSTART:20171201T150000Z
DTEND:20171201T170000Z
UID:TALK96457@talks.cam.ac.uk
CONTACT:Cambridge-INET Institute\, Faculty of Economics
DESCRIPTION:2 Talks:  \n\n"Currency Regimes and the Carry Trade "\, David 
 Chambers (JBS\, Cambridge) \n\nAbstract:\nCarry trade returns vary across 
 fixed and floating currency regimes. Over the last\ncentury\, outsized car
 ry returns occur exclusively in the floating regime\, being zero in the fi
 xed regime. The absence of skewness in floating carry returns rules out a 
 skewness-based explanation for this result. Fixed-to-floating regime shift
 s deliver negative return shocks to the floating carry strategy\, even whe
 n controlling for volatility risk. This result explains average excess ret
 urns to the floating and therefore the unconditional carry trades over the
  long-run. We rationalize these findings with a model allowing risk compen
 sation in currency markets to depend on regime. \n\n"Exchange Rate Expecta
 tions and Risk Premia"\, Emile Marin (Faculty of Economics\, Cambridge)\n\
 nAbstract: \nWe present a stylized model of exchange rate determination in
  segmented financial markets. Exchange rate movements compensate global fi
 nanciers who intermediate trade but require a risk premium for their servi
 ces. We show that if exchange rate expectations\, as determined by fundame
 ntals in perfect financial markets\, follow a stationary autoregressive pr
 ocess\, then the model predicts a plausible time profile for the exchange 
 rate risk premium\, in line with empirical facts which we document in an e
 xtended dataset. In contrast\, if exchange rates are expected to follow a 
 random walk\, the model predicts that violations to the uncovered interest
  rate parity condition will be monotonically increasing with the horizon\,
  which is not supported by empirical facts. Finally\, we investigate the i
 mplications of market structure in financial intermediation and discuss th
 e robustness of our results.\n\nRegistration link: http://bit.ly/2AeP1Ng\n
 \nThis event is co-sponsored by the Centre for Financial History.
LOCATION:Meade Room\, Faculty of Economics\, Cambridge
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