Measuring the Reward-to-Risk Ratio from the Euro-Currency Market (In French)

38 Pages Posted: 4 Jan 2011

See all articles by Eric Jondeau

Eric Jondeau

University of Lausanne - Faculty of Business and Economics (HEC Lausanne); Swiss Finance Institute; Swiss Finance Institute

Date Written: January 1, 1999

Abstract

In this paper, we study the reward-to-risk ratio, using monthly euro-dollar, euro-mark and euro-franc term structures between 1975 and 1997. We test the relationship between excess holding return and volatility in an ARCH-in-Mean framework. We first obtain that the conditional volatility displays a non-stationary pattern, that there is no asymmetric effects from shocks to volatility, and that the conditional density is well represented by a student's t distribution for the euro-dollar and by a GED for the euro-mark and the euro-franc. We then find that the best relation between excess return and risk is obtained when the risk is represented by the logarithm of the conditional volatility. Last the estimates of the reward-to-risk ratio are lower than to those obtained in previous empirical studies on stock returns but similar to those obtained on monetary and bond returns.

Note: Downloadable document is in French.

Keywords: Term structure of interest rates, Reward-to-risk ratio, ARCH-in-Mean model

JEL Classification: E43, G11

Suggested Citation

Jondeau, Eric, Measuring the Reward-to-Risk Ratio from the Euro-Currency Market (In French) (January 1, 1999). Banque de France Working Paper No. 59, Available at SSRN: https://ssrn.com/abstract=1734645 or http://dx.doi.org/10.2139/ssrn.1734645

Eric Jondeau (Contact Author)

University of Lausanne - Faculty of Business and Economics (HEC Lausanne) ( email )

Extranef 232
Lausanne, 1012
Switzerland
+41 21 692 33 49 (Phone)

HOME PAGE: http://people.unil.ch/ericjondeau/

Swiss Finance Institute ( email )

40, Boulevard du Pont-d'Arve
40, Bd du Pont-d'Arve
1211 Geneva 4, CH-6900
Switzerland
+41 21 692 33 49 (Phone)

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
48
Abstract Views
687
PlumX Metrics