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Trade Network Centrality and Currency Risk Premia

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  • ROBERT J. RICHMOND
Abstract
I uncover an economic source of exposure to global risk that drives international asset prices. Countries that are more central in the global trade network have lower interest rates and currency risk premia. To explain these findings, I present a general equilibrium model in which central countries' consumption growth is more exposed to global consumption growth shocks. This causes the currencies of central countries to appreciate in bad times, resulting in lower interest rates and currency risk premia. Empirically, central countries' consumption growth covaries more with world consumption growth, further validating the proposed mechanism.

Suggested Citation

  • Robert J. Richmond, 2019. "Trade Network Centrality and Currency Risk Premia," Journal of Finance, American Finance Association, vol. 74(3), pages 1315-1361, June.
    • Handle: RePEc:bla:jfinan:v:74:y:2019:i:3:p:1315-1361
    DOI: 10.1111/jofi.12755
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