DF Lunch Seminar Prof. Mikhail Chernov, UCLA

Department of Finance

What do financial markets say about the exchange rate?

University of Luxembourg, Kirchberg Campus

With the Lunch Seminar series, the Department of Finance is bringing eminent and up-and-coming researchers from around the world to Luxembourg. Abstract:What do financial markets say about the exchange rate?Not very much.We study a broad set of international financial market structures disciplined by the absence of arbitrage opportunities. In circumstances when financial markets are informative about the exchange rate, the constraints they impose on its behavior yield counterfactual implications. In contrast, financial market structures that are consistent with observed empirical properties of the exchange rate impose few constraints on its equilibrium behavior. Hence, financial markets contain nearly no information about the exchange rate resulting in financial exchange rate disconnect. Models of intermediary pricing of the exchange rate are consistent with its empirical properties, including the financial disconnect.The seminar will be held in place.This event is Supported by the Luxembourg National Research Fund (2022/17573036)

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