---
title: A Currency Premium Puzzle
url: https://www.ml-quant.com/papers/repec/nbr-nberwo-35572/
site: ML-Quant (https://www.ml-quant.com)
updated: 2026-10-09
license: Summaries CC BY 4.0; links go to the original sources
index: https://www.ml-quant.com/llms.txt
identifier: RePEc:nbr:nberwo:35572
source_url: https://econpapers.repec.org/RePEc:nbr:nberwo:35572
featured: 2026-10-09
citations: unknown
topic: Asset Pricing & Factors
---


# A Currency Premium Puzzle

The paper proves that asset pricing models solving equity and risk-free rate puzzles fail to generate observed interest-rate differentials between risky and safe currencies.

- Source: https://econpapers.repec.org/RePEc:nbr:nberwo:35572
- Identifier: RePEc:nbr:nberwo:35572
- Released: 2026-09-26
- First featured: Quant Letter No. 134 (2026-10-09): https://www.ml-quant.com/issues/2026-10-09/
- Citations (Semantic Scholar): not tracked
- Published in: not yet
- Topic: Asset Pricing & Factors
- Authors: Tarek Alexander Hassan, Thomas Mertens, Jingye Wang

## Related

- [Skewness Risk Premia and the Cross-Section of Currency Returns](https://www.ml-quant.com/papers/repec/cpr-ceprdp-20587/): Using model-free skewness measures from currency options, the study shows that skewness risk is priced in currency returns and explains variation across a broad cross-section of currency portfolios.
- [Pricing Risk Globally: Intermediary Constraints, the Dollar, and the Global Financial Cycle](https://www.ml-quant.com/papers/repec/fip-fedgif-103716/): A two-country model shows that uncertainty shocks tighten intermediary constraints, widening credit spreads, appreciating the dollar, and raising currency risk premia globally.
- [Carry Trade and Currency Crash Risk](https://www.ml-quant.com/papers/repec/cpr-ceprdp-20745/): Focusing on dollar-lira trading, the paper shows that higher crash risk significantly increases carry trade expected returns, accounting for 46–77% of compensation through Shapley decomposition.
- [FOMC Announcement Premiums](https://www.ml-quant.com/papers/ssrn/5237922/): Currency risk premiums fluctuate on U.S. FOMC announcement days, with currencies expecting a larger reduction in implied variance earning higher returns.
- [Currency Risk Premiums Study](https://www.ml-quant.com/papers/ssrn/4849102/): A currency cross-section study found that only a small fraction of nontradable factors, mostly related to volatility, uncertainty, and liquidity, have a significant risk premium, not macro variables.
- [Risk Premia in the Commodity Market](https://www.ml-quant.com/papers/ssrn/4796343/): Machine learning methodologies reveal that momentum factors from equity, bonds, and currencies are priced into commodity returns, indicating a connection between commodity and other financial markets.