
doi: 10.2139/ssrn.3796290
We study a large currency cross section using recently developed asset pricing methods. First, we show that the implied pricing kernel includes three latent factors: a strong U.S. `Dollar' level factor, and two weak, high Sharpe ratio `Carry' and `Momentum' slope factors. The evidence for an additional 'Value' factor is scant. Second, based on this pricing kernel, we obtain robust estimates of the risk premia of more than 100 non-tradable risk factors. Some of these factors - mostly relating to volatility, uncertainty and liquidity conditions in currency and other markets - are priced, disclosing a clear nexus across asset classes.
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