Return dispersion risk in FX and global equity markets: Does it explain currency momentum? Academic Article

abstract

• 2018 Elsevier Inc. We investigate the potential link between momentum in currency returns and global economic risk as measured by currency return dispersion (RD). Initial tests contribute to the exchange rate puzzle by showing that a common macroeconomic risk component in currency markets is present in global equity markets. Subsequent tests indicate 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. Based on this evidence, we conclude that global economic risk as proxied by RD helps to explain currency momentum profits.

authors

• Kolari, James

published proceedings

• INTERNATIONAL REVIEW OF FINANCIAL ANALYSIS

author list (cited authors)

• Grobys, K., Heinonen, J., & Kolari, J.

citation count

• 6

complete list of authors

• Grobys, Klaus||Heinonen, Jari-Pekka||Kolari, James

publication date

• March 2018

publisher

• Elsevier  Publisher

published in

• International Review of Financial Analysis  Journal

keywords

• Currency Markets
• Global Economic Risk
• Momentum
• Return Dispersion

Digital Object Identifier (DOI)

• 10.1016/j.irfa.2018.01.010

start page

• 264

end page

• 280

volume

• 56

URL

• http://dx.doi.org/10.1016/j.irfa.2018.01.010