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RESEARCH PRODUCT
Is Momentum in Currency Markets Driven by Global Economic Risk?
Jari-pekka HeinonenKlaus GrobysKlaus GrobysJames W. Kolarisubject
Economic riskCurrencyFinancial economicsDevaluationEquity (finance)BusinessForeign exchange riskMomentum profitsdescription
This article investigates the potential link between momentum in currency returns and global economic risk as measured by currency return dispersion (RD). We find that the spread on zero-cost currency momentum strategies is larger and highly significant in high RD states compared to low RD states. Also, the relation between these momentum payoffs and global economic risk appears to increase linearly in risk. Further tests indicate that the same macroeconomic risk component in currency markets is present in global equity markets. Based on this evidence, we conclude that global economic risk as proxied by RD helps to explain currency momentum profits.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2015-01-01 | SSRN Electronic Journal |