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International Portfolio Diversification and the Foreign Exchange Risk Premium

Author

Listed:
  • Nessén, Marianne

    (Dept. of Finance, Stockholm School of Economics)

Abstract

A multi-country model of intertemporal portfolio choice and the foreign exchange risk premium which incorporates both nominal price and relative price risk is developed. Portfolio demands are derived and interpreted in terms of diversification and hedge portfolios. The equilibrium foreign exchange risk premium is then analyzed and discussed in terms of e.g. relative and nominal price uncertainty. Special attention is paid to the effects of deviations from purchasing power parity.

Suggested Citation

  • Nessén, Marianne, 1994. "International Portfolio Diversification and the Foreign Exchange Risk Premium," SSE/EFI Working Paper Series in Economics and Finance 43, Stockholm School of Economics.
    • Handle: RePEc:hhs:hastef:0043
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    More about this item

    Keywords

    Risk premium model; international portfolio diversification;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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