Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/312406 
Authors: 
Year of Publication: 
2024
Series/Report no.: 
Ruhr Economic Papers No. 1133
Publisher: 
RWI - Leibniz-Institut für Wirtschaftsforschung, Essen
Abstract: 
The position of countries in a network of external portfolio investments provides a novel macroeconomic characteristic to explain violations of uncovered interest rate parity. I derive a network centrality measure, where central countries are highly integrated with key suppliers of tradeable financial assets. Currency risk premia decrease as network centrality increases. Asset pricing tests confirm that the centrality risk factor is priced in the cross-section. Further, negative global shocks appreciate central countries' currencies and depreciate peripheral ones. In a consumption-based capital asset pricing model, central countries experience lower consumption growth in high marginal utility states, leading to currency appreciation.
Subjects: 
Exchange rates
currency risk premia
external portfolios
financial network
asset pricing
JEL: 
F31
E43
E44
G12
G15
Persistent Identifier of the first edition: 
ISBN: 
978-3-96973-315-8
Document Type: 
Working Paper

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