Topic: Variance Risk Premiums and the Forward Premium Puzzle
Speaker: Hao Zhou, Unigroup Chair Professor, PBC School of Finance
Date: November 5th, 2014 (Wed.)
Time: 12:10-1:10pm
Location: Building 1, Room 501, Faculty Lounge
Language: English
Abstract:
We provide new empirical evidence that world currency and U.S. stock variance risk premiums have non-redundant and significant predictive power for the appreciation rates of 22 currencies with respect to the U.S. dollar, especially at the 4-month and 1-month horizons, respectively. These time variations in expected currency returns support a risk-based explanation of the forward premium puzzle. We rationalize these findings in a consumption-based asset pricing model with orthogonal local and global economic uncertainties characterized, respectively, by the stock and currency variance risk premiums. Global uncertainty is associated with currency crash risk.
About the speaker:
Hao Zhou is currently a professor at PBC School of Finance, Tsinghua University. Before March 2013, he was a senior economist at the Board of Governors of the Federal Reserve System. Hao was also visiting professors at MIT and Peking University. He joined the Federal Reserve after receiving a PhD degree in economics from Duke University in 2000 and also held BA and MA degrees in economics from Peking University. Hao’s research agenda covers the areas of consumption-based asset pricing models with stochastic volatility, structural credit risk models and credit derivatives market, financial market volatility and return predictability, dynamic model of term structure of interest rate, realized jumps on financial market and asset pricing puzzles, international risk premium dynamics and incomplete market, systemic risk and macro-prudential regulation of financial institutions. He has published in Journal of Finance, Review of Financial Studies, Journal of Financial and Quantitative Analysis, Journal of Econometrics, Journal of Business and Economic Statistics, Journal of Banking and Finance, Journal of Financial Econometrics, Journal of Financial Services Research, among others.
