Do terrorist attacks matter for currency excess returns?

Yiye Liu, Liyan Han, You Wu and Libo Yin

Finance Research Letters, 2022, vol. 49, issue C

Abstract: This paper provides a novel investigation into how currency excess returns react to terrorist attacks. We construct a terrorism risk factor and demonstrate that it significantly matters to excess returns of both carry trade and individual currencies. Furthermore, we form a currency portfolio by simply buying terrorism-sensitive currencies and selling less terrorism-sensitive currencies, which yields economically positive and statistically significant returns. It has shown that this newly proposed terrorism risk factor could provide a marginal improvement for exchange rate pricing facing terrorist attacks.

Keywords: Terrorist attacks; Excess returns; Carry trade; FX markets (search for similar items in EconPapers)
JEL-codes: G15 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:49:y:2022:i:c:s1544612322003130

DOI: 10.1016/j.frl.2022.103087

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