Dollar and Carry Redux
Prof. Thomas Andreas MAURER
Associate Professor of Finance
HKU Business School
University of Hong Kong
Date: 6 November 2025 (Thursday)
Time: 11:00-12:30
Venue: E22-G004
Host: Prof. Wenjin KANG, Professor in Finance
Abstract
Contrary to existing literature, we establish that two factors, dollar and carry, suffice to explain a large cross-section of currency returns with R2s exceeding 80%. Our paper highlights the importance of accounting for time-variation in conditional moments. Unconditional estimations that ignore this time-variation mistakenly reject the two-factor model. We propose a parsimonious framework to estimate conditional currency factor models and provide testable restrictions. Our findings imply that currency markets are well described by a model in which (i) each country-specific SDF loads on one country-specific—dollar—and one global—carry—shock, and (ii) risk loadings are time-varying. Other risk factors proposed in the literature are useful to describe the time variation in dollar and carry factor risk premia.
Speaker
Prof. Thomas Andreas Maurer is an Associate Professor of Finance at the HKU Business School, The University of Hong Kong. Before joining HKU in 2019, he was an Assistant Professor of Finance at the Olin Business School, Washington University in St. Louis from 2012 to 2019. His research contributions are in the area of theoretical and empirical asset pricing, international finance and household finance. He regularly serves as a committee member for academic conferences and as an academic referee for many major economics and finance journals.
All are welcome!
