Econometrics Seminar Series. "Volatility Shocks and Currency Returns"
Published: 26 March 2025
02 May 2025. Dr Mykola Babiak, Lancaster University Management School
Dr Mykola Babiak, Lancaster University Management School
"Volatility Shocks and Currency Returns"
Friday, 02 May 2025. 15:00-16:30
Room 141A, Adam Smith Business School Building
Abstract
This paper studies how shocks to currency volatilities affect exchange rates. Theoretically, we develop a multi-country model where jumps in one country can affect other regions. We demonstrate that the expected excess return and volatility of a currency depend on the jump effects across all countries. Empirically, we document a negative cross-sectional association between the currency premia and transmitted volatility shocks to others, consistent with the theory. Buying the weakest and selling the strongest transmitters of strongly correlated volatility shocks resembles the carry trade. In contrast, the long-short strategy based on free-from-correlation volatility shocks reflects a novel source of predictability.
Bio
Mykola Babiak is an Associate Professor of Finance at Lancaster University Management School. He was awarded a Ph.D. in Economics by the Center for Economic Research and Graduate Education - Economics Institute (CERGE-EI) in Fall 2019. During my Ph.D., he worked as an economist at Moody's Analytics and was a visiting scholar at Columbia Business School and Warwick Business School. His research interests include asset pricing, macro-finance, financial derivatives, and digital currencies.
For further information, please contact business-seminar-series@glasgow.ac.uk.
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First published: 26 March 2025