[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"detail-sidebar-cat-0-en-105":3,"doc-seo-202122-105":59,"doc-detail-202122-en":130},{"code":4,"msg":5,"data":6},0,"success",[7,13,18,23,28,33,38,43,48,51,55],{"id":8,"doc_module":4,"doc_module_name":9,"category_name":10,"show_sort_weight":11,"slug":12},1,"Document","Story & Novel",90,"story-novel",{"id":14,"doc_module":4,"doc_module_name":9,"category_name":15,"show_sort_weight":16,"slug":17},2,"Literature",80,"literature",{"id":19,"doc_module":4,"doc_module_name":9,"category_name":20,"show_sort_weight":21,"slug":22},4,"Exam",70,"exam",{"id":24,"doc_module":4,"doc_module_name":9,"category_name":25,"show_sort_weight":26,"slug":27},5,"Comic",60,"comic",{"id":29,"doc_module":4,"doc_module_name":9,"category_name":30,"show_sort_weight":31,"slug":32},6,"Technology",50,"technology",{"id":34,"doc_module":4,"doc_module_name":9,"category_name":35,"show_sort_weight":36,"slug":37},7,"Healthcare",40,"healthcare",{"id":39,"doc_module":4,"doc_module_name":9,"category_name":40,"show_sort_weight":41,"slug":42},8,"Research & Report",30,"research-report",{"id":44,"doc_module":4,"doc_module_name":9,"category_name":45,"show_sort_weight":46,"slug":47},9,"Religion & Spirituality",20,"religion-spirituality",{"id":46,"doc_module":4,"doc_module_name":9,"category_name":49,"show_sort_weight":46,"slug":50},"World Cup","world-cup",{"id":52,"doc_module":4,"doc_module_name":9,"category_name":53,"show_sort_weight":52,"slug":54},10,"Lifestyle","lifestyle",{"id":56,"doc_module":4,"doc_module_name":9,"category_name":57,"show_sort_weight":24,"slug":58},19,"General","general",{"code":4,"msg":60,"data":61},"ok",{"site_id":62,"language":63,"slug":64,"title":65,"keywords":66,"description":67,"schema_data":68,"social_meta":123,"head_meta":125,"extra_data":127,"updated_unix":129},105,"en","us-equity-tail-risk-and-currency-risk-premia-abstract","U.S. Equity Tail Risk and Currency Risk Premia - Abstract","","Paper examines how an option-based U.S. equity tail risk factor is incorporated into the cross section of currency excess returns. Currencies with high exposure to this factor receive a low risk premium because they serve as hedges against U.S. tail risk. A reduced-form framework shows that a long-short strategy extracting the global component of the U.S.-tail factor can be constructed from currency returns. The resulting global tail risk factor, together with the dollar factor, explains a substantial share of carry and momentum portfolio variation and outperforms competing models.",{"@graph":69,"@context":122},[70,84,105],{"@type":71,"itemListElement":72},"BreadcrumbList",[73,77,79,82],{"item":74,"name":75,"@type":76,"position":8},"https://docshare.wps.com","Home","ListItem",{"item":78,"name":9,"@type":76,"position":14},"https://docshare.wps.com/document/",{"item":80,"name":40,"@type":76,"position":81},"https://docshare.wps.com/document/research-report/",3,{"item":83,"name":65,"@type":76,"position":19},"https://docshare.wps.com/document/us-equity-tail-risk-and-currency-risk-premia-abstract/202122/",{"url":83,"name":65,"@type":85,"image":86,"author":91,"headline":65,"publisher":94,"fileFormat":97,"inLanguage":63,"description":67,"dateModified":98,"datePublished":99,"encodingFormat":97,"isAccessibleForFree":100,"interactionStatistic":101},"DigitalDocument",{"url":87,"@type":88,"width":89,"height":90},"https://docshare.wps.com/thumbnails/us-equity-tail-risk-and-currency-risk-premia-abstract/202122.png","ImageObject",300,407,{"name":92,"@type":93},"Oliver Hayes","Person",{"url":74,"name":95,"@type":96},"DocShare","Organization","application/pdf","2026-11-06","2026-09-04",true,{"@type":102,"interactionType":103,"userInteractionCount":44},"InteractionCounter",{"@type":104},"ViewAction",{"@type":106,"mainEntity":107},"FAQPage",[108,114,118],{"name":109,"@type":110,"acceptedAnswer":111},"What does the paper find about the pricing of U.S. equity tail risk in currency returns?","Question",{"text":112,"@type":113},"An option-based U.S. equity tail risk factor is priced across the cross section of currency excess returns. Currencies more exposed to the factor tend to have lower risk premia because they hedge U.S. tail risk.","Answer",{"name":115,"@type":110,"acceptedAnswer":116},"How does the reduced-form model describe the role of tail risk in currency returns?",{"text":117,"@type":113},"The model implies that exposures of foreign currencies to a tail risk factor matter in the cross section. A long-short portfolio that buys high tail beta currencies and shorts low tail beta currencies extracts the global component embedded in the tail risk factor.",{"name":119,"@type":110,"acceptedAnswer":120},"How is the global tail risk factor constructed and what does it explain?",{"text":121,"@type":113},"The paper constructs a U.S. equity tail risk factor from left-jump tail measure innovations and then forms a global tail risk factor from currency returns. Along with the dollar factor, it explains a large portion of the variation in currency carry and momentum portfolios and outperforms other popular models.","https://schema.org",{"og:url":83,"og:type":124,"og:title":65,"og:site_name":95,"og:description":67},"article",{"robots":126,"canonical":83},"index,follow",{"doc_id":128,"site_id":62},202122,1788542458,{"code":4,"msg":5,"data":131},{"doc_id":128,"user_id":132,"nickname":92,"user_avatar":133,"doc_module":4,"category_id":39,"category_name":40,"doc_title":65,"doc_description":67,"doc_content":134,"file_id":135,"file_url":136,"file_type":137,"file_size":138,"view_count":44,"is_deleted":4,"is_public":8,"is_downloadable":8,"audit_status":8,"page_count":139,"language":140,"language_code":63,"site_id":62,"html_lang":63,"table_of_contents":141,"faqs":142,"seo_title":143,"seo_description":67,"update_tm":129,"read_time":144,"preview_page_count":4},687207020761,"https://ap-avatar.wpscdn.com/davatar_155a257f0dc6eb9ab79c44ca47cae57d","U.S. Equity Tail Risk and Currency Risk Premia 􀀃  \nZhenzhen Fany Juan M. Londonoz Xiao Xiaox  \nThis Version: November 2019  \nAbstract  \nWe 􀀌nd that an option-based U.S. equity tail risk factor is priced in the cross section of currency returns. Currencies highly exposed to this factor o􀀋er a low risk premium because they hedge against U.S. tail risk. In a reduced-form model, we show that a long-short portfolio that buys currencies with high U.S. equity tail beta and shorts those with low tail beta extracts the global component embedded in the U.S. tail risk factor. Inspired by the model, we construct a novel global tail risk factor from currency returns. This factor along with the dollar factor explains a large portion of the cross-sectional variation in the currency carry and momentum portfolios and outperforms other popular models.  \nJEL Classi􀀌cation: G12, G15, F31  \nKeywords: Global tail risk; Currency returns; Carry trade; Currency momentum.  \n􀀃 We would like to thank Gurdip Bakshi, Ric Colacito, Esther Eiling, Daniel Ladley, George Panayotov, Steven Riddiough, Christian Wagner, and Michael Weber for helpful comments. We would also like to thank participants at the Vienna symposium on foreign exchange markets, the Asian Finance Association annual conference, and seminar participants at HEC Montreal. This paper has been accepted for presentation at the 2020 AFA meetings in San Diego. Zhenzhen Fan and Xiao Xiao would like to thank the funding support from the Canadian Derivatives Institute. The analysis and conclusions set forth are those of the author and do not indicate concurrence by other members of the Federal Reserve Board.  \ny School of Finance, Nankai University. Email: [zhenzhen.fan@nankai.edu.cn](zhenzhen.fan@nankai.edu.cn).  \nz Division of International Finance at the Federal Reserve Board of Governors. Email: [juan.m.londono@frb.gov](juan.m.londono@frb.gov).  \nx Corresponding author. Erasmus School of Economics, Erasmus University Rotterdam. Email: [xiao@ese.eur.nl](xiao@ese.eur.nl).  \nU.S. Equity Tail Risk and Currency Risk Premia  \nThis Version: November 2019  \nAbstract  \nWe 􀀌nd that an option-based U.S. equity tail risk factor is priced in the cross section of currency returns. Currencies highly exposed to this factor o􀀋er a low risk premium because they hedge against U.S. tail risk. In a reduced-form model, we show that along-short portfolio that buys currencies with high U.S. equity tail beta and shorts those with low tail beta extracts the global component embedded in the U.S. tail risk factor. Inspired by the model, we construct a novel global tail risk factor from currency returns. This factor along with the dollar factor explains a large portion of the cross-sectional variation in the currency carry and momentum portfolios and outperforms other popular models.  \nJEL Classi􀀌cation: G12, G15, F31  \nKeywords: Global tail risk; Currency returns; Carry trade; Currency momentum  \n1. Introduction  \nThis paper studies the pricing implications of U.S. equity tail risk in the cross section of currency excess returns. The size and international linkages of the U.S. economy have substantial implications for the global [economy. The U.S. is](economy. The U.S. is), after all, the largest economy in the world, according to the World Economic Outlook report published by the IMF in 2019. In terms of trade linkages, [the U.S. is](the U.S. is) the most important export destination for one-􀀌fth of all countries in the world, according to the 2018 World Bank's Global Economic Prospects report, and most of the international goods trade is invoiced in U.S. dollars (Goldberg and Tille (2008)) . Several recent studies show that, as a consequence of trade and 􀀌nancial linkages, movements in U.S. equity markets have important implications for the pricing of international assets. For instance, Rapach, Strauss, and Zhou (2013) 􀀌nd evidence that U.S. stock returns have a leading role in the predictability of international stock retu","cbCailqeORorlqZq","https://ap.wps.com/l/cbCailqeORorlqZq","pdf",645725,61,"English","# Introduction\n## Pricing implications of U.S. equity tail risk\n## Reduced-form model and global tail component\n## Construction of the U.S. equity tail risk factor\n## Empirical relevance for currency carry and momentum","[{\"question\":\"What does the paper find about the pricing of U.S. equity tail risk in currency returns?\",\"answer\":\"An option-based U.S. equity tail risk factor is priced across the cross section of currency excess returns. Currencies more exposed to the factor tend to have lower risk premia because they hedge U.S. tail risk.\"},{\"question\":\"How does the reduced-form model describe the role of tail risk in currency returns?\",\"answer\":\"The model implies that exposures of foreign currencies to a tail risk factor matter in the cross section. A long-short portfolio that buys high tail beta currencies and shorts low tail beta currencies extracts the global component embedded in the tail risk factor.\"},{\"question\":\"How is the global tail risk factor constructed and what does it explain?\",\"answer\":\"The paper constructs a U.S. equity tail risk factor from left-jump tail measure innovations and then forms a global tail risk factor from currency returns. Along with the dollar factor, it explains a large portion of the variation in currency carry and momentum portfolios and outperforms other popular models.\"}]","U.S. Equity Tail Risk and Currency Risk Premia - Abstract | PDF",154]