Banque Nationale De Belgique Sa · EURONEXT:BNB
Banque Nationale De Belgique Sa — Investor Presentation (December 2024)
13 slides from Banque Nationale De Belgique Sa's investor presentation, Dec 20, 2024
Slide 1: Survey Expectations Meet Option Prices: New Insights from the FX Market
Survey Expectations Meet Option Prices: New Insights from the FX Market Pasquale Della Corte, Can Gao, and Alexandre Jeanneret Discussion @ 14th Workshop on Exchange Rates 2024 Irina Zviadadze HEC Paris & CEPR December 20, 2024
Slide 2: Overview
Overview ▶ What do survey expectations and derivatives markets tell us about the FX risk-return tradeoff? ▶ Emphasis is on the term structure of risk preferences [conditional and unconditional] ▶ Evidence under the minimal number of assumptions
Slide 3: Analysis design
Analysis design ▶ The core equation (follows from Kremens and Martin (2019)) Si,T Rf ,t 1 ∗ Si,T Et − i = Covt Rg ,T , Si,t Rf ,t Rf ,t Si,t | {z } | {z } LHS RHS where Rg ,T is the gross return on the growth optimal portfolio. ▶ The LHS can be measured from survey expectations ▶ To measure the RHS,
Slide 4: Data and empirical findings
Data and empirical findings ▶ Data 1. 1- to 24-month options on the S&P 500 and FX rates 2. Thirty currencies against the USD from 1996 to 2020 3. Monthly forecasts with a horizon of 1, 3, 12, and 24 months from the Foreign Exchange Consensus Forecasts Database ▶ Empirical findings 1. Using data for
Slide 5: Comments
Comments 1. A smoke gun test 2. Model misspecification concerns 3. Interpretation
Slide 6: A smoke gun test
A smoke gun test ▶ The key source of identification of φ is in this equation: $ ϕ Rf ,t Rm,T ST S Et − = Cov⋆t h i, T St € Rf ,t E⋆t Rm,T St ϕ | {z } ERPϕ t ▶ The LHS and RHS should exhibit similar properties. Do they? ▶ Kremens and Martin (2019): the quanto premium (ERPtφ=1 ) predicts excha
Slide 7: What explains exchange rate expectations?
What explains exchange rate expectations? Table 4: What informs exchange rate expectations? Survey Excess Returns (SXR) (1) (2) (3) (4) (5) (6) (7) (8) IRD -2.041 0.851 -3.467** -1.895 -1.913 -1.950 0.283 (1.142) (0.612) (0.905) (1.192) (1.460) (1.232) (0.861) QRP 3.737*** 3.056*** 3.052*** (0.491)
Slide 8: A smoke gun test
A smoke gun test ▶ The key source of identification of ϕ is in this equation: ϕ Rf$,t R ST m,T S Et − = Cov⋆t h i, T St € Rf ,t Et Rm,T St ⋆ ϕ | {z } ERPϕ t ▶ The LHS and RHS should exhibit similar properties. Do they? ▶ The correlation between the survey-based and option-implied expectation
Slide 9: Model misspecification
Model misspecification ϕ ▶ Is this SDF, MT = λ−1 Rm,T , with ϕ = 4.23 price unconditionally a cross-section of currency returns? ▶ Is the horizon-dependent SDF consistent with the multihorizon cross-sectional test of Chernov, Lochstoer, and Lundeby (2022)
Slide 10: Economic interpretation
Economic interpretation ▶ The role of subjective versus objective expectations ▶ Kremens, Martin, and Varela (2023): the FX expectations of financial professionals predict FX rates at the 2-year horizon but not at shorter horizons ▶ What ϕ has to do with it? ▶ Scope for the discrepancy between subje
Slide 11: What explains exchange rate expectations?
What explains exchange rate expectations? Table 7: Forecast Performance Across Horizons Forecasting RXRhú with SXRhú RXRhú with SXR24 ú ú RXR24 with SXRhú 1M 3M 12M 24M 1M 3M 12M 1M 3M 12M (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Panel A. Post-GFC Sample (12/2009 – 3/2019) SXRú 0.088 0.093 0.237 0.7
Slide 12: Economic interpretation
Economic interpretation ▶ The role of subjective versus objective expectations ▶ Kremens, Martin, and Varela (2023): the FX expectations of financial professionals predict FX rates at the 2-year horizon but not at shorter horizons ▶ What ϕ has to do with it? ▶ Scope for the discrepancy between subje
Slide 13: Conclusions
Conclusions ▶ A thought-provoking paper in a topical literature! ▶ My wish list ▶ Economic implications and interpretation can be strengthened: could you provide a couple of examples with dynamic economies consistent with the SDF of the paper ▶ Showing that this is a realistic SDF will make it stron
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