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Home | Events | Reassessing Sources of Risk Premiums in Currency Markets
Seminar

Reassessing Sources of Risk Premiums in Currency Markets

  • Series
    Erasmus Finance Seminars
  • Speaker(s)
    Magnus Dahlquist (Stockholm School of Economics, Sweden)
  • Field
    Finance, Accounting and Finance
  • Location
    Erasmus University Rotterdam, Campus Woudestein, Langeveld 3.02
    Rotterdam
  • Date and time

    October 13, 2026
    11:45 - 13:00

Abstract

We study how expanding the currency universe changes the risk-return trade-off. Performance improves beyond the G10, but the gains are concentrated in a small set of liquid, floating currencies. A mean-variance efficient portfolio formed from this set prices strategies from the full universe and outperforms them net of trading costs. Within this pricing set, Sharpe-ratio contributions are approximately flat across principal components, so large covariance directions command no more compensation than small ones. This structure explains why prominent currency strategies can contain large amounts of unpriced risk.