This paper considers the problem of measuring macroeconomic sources of financial risk. It aims to provide a general theory of asset pricing suitable for taking account of macroeconomic sources of risk.
Stochastic discount factor ( SDF) theory is used to provide the theoretical framework.
This study investigates the macroeconomic sources of foreign exchange risk premium in South Africa using the stochastic discount factor ( SDF) approach based on observable macroeconomic factors. This Paper is an exploration into the links between macroeconomics and finance as they affect the FOREX risk premium.
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SDF theory is used in which the factors are observable macroeconomic variables. Three SDF theories are compared: a benchmark model based on traditional tests of FOREX efficiency; consumption- based CAPM; and the monetary model of the exchange rate. Forex Risk Events Rate Decisions, Geopolitics and Non Farm Payrolls The markets are set for another busy week, including central bank interest rate decisions and Non Farm Payrolls.