Market news co-moments and currency returns

Mohammadreza Tavakoli Baghdadabad () and Girijasankar Mallik ()
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Mohammadreza Tavakoli Baghdadabad: Australian National Institute of Management and Commerce (IMC)
Girijasankar Mallik: Business School, Western Sydney University

Empirical Economics, 2021, vol. 61, issue 4, No 5, 1819-1863

Abstract: Abstract We propose three co-moments of the market returns’ cash-flow, and discount-rate shocks and examine empirically an intertemporal capital asset pricing model using the co-moments on currency returns as well as stock returns during Dec. 1983 to Dec. 2017. We find that our proposed model has explanatory power for both currency and stock portfolios. We find several common sources of market risk in currency and stock returns that are reflected in market news. Our findings show that the co-moments are related to currency risk premiums and outperform the well-known liquidity, dollar and HML risk factors.

Keywords: Market news; Cash-flow; Discount rate; Risk co-moments (search for similar items in EconPapers)
JEL-codes: G12 G32 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s00181-020-01951-y

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