Sovereign default network and currency risk premia  

作　　者：Lu Yang Lei Yang Xue Cui 

机构地区：[1]College of Economics,Shenzhen University,3688 Nanhai Avenue,Nanshan District,Shenzhen 518060,Guangdong,People’s Republic of China [2]Shanghai Jiaotong University,Shanghai Advanced Institute of Finance,211 West Huaihai Road,Shanghai 200030,People’s Republic of China

出　　处：《Financial Innovation》2023年第1期2366-2387,共22页金融创新（英文）

基　　金：supported by the Natural Science Foundation of Guangdong Province,Grant No.2023A1515030221.

摘　　要：We construct a sovereign default network by employing high-dimensional vector autoregressions obtained by analyzing connectedness in sovereign credit default swap markets.We develop four measures of centrality,namely,degree,betweenness,closeness,and eigenvector centralities,to detect whether network properties drive the currency risk premia.We observe that closeness and betweenness centralities can negatively drive currency excess returns but do not exhibit a relationship with forward spread.Thus,our developed network centralities are independent of an unconditional carry trade risk factor.Based on our findings,we develop a trading strategy by taking a long position on peripheral countries’currencies and a short position on core coun-tries’currencies.The aforementioned strategy generates a higher Sharpe ratio than the currency momentum strategy.Our proposed strategy is robust to foreign exchange regimes and the coronavirus disease 2019 pandemic.

关 键 词：Sovereign CDS Currency risk premia High-dimensional network LASSO 

分 类 号：G01[文化科学] G12G15