Contagion effects : evidence from the foreign exchange market risk

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This project attempts to clarity the relative importance of common risks factors in foreign exchange markets. We provide evidence of the relative importance of common factors in all counties. Their importance is underlined particularly in small countries, unveiling the vulnerability of these countries in response to exogenous shocks. Furthermore, regardless of their geographical location, these common factors are found to be influenced largely by economic developments in the USA. And finally, during recent crisis periods non-stationary elements in the risks are reported to be more significant.