Conditional currency momentum portfolios

Yasuhiro Iwanaga and Ryuta Sakemoto

International Review of Financial Analysis, 2025, vol. 99, issue C

Abstract: Currency momentum portfolios have not generated positive returns after the global financial crisis. We propose conditional currency momentum strategies that incorporate information about the average forward discount, the currency market volatility, and the return dispersion of currency portfolios. Our strategy goes long in the momentum portfolio only when the average forward discount is positive, the volatility is low, and the return dispersion is low. We reveal that the conditional one-month currency momentum portfolio raises the Sharpe ratio by 0.69 and the certainty equivalent return by 6.6 % per annum.

Keywords: Currency portfolio; Momentum; Volatility; Return dispersion; Average forward discount (search for similar items in EconPapers)
JEL-codes: F30 G0 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:99:y:2025:i:c:s1057521925000511

DOI: 10.1016/j.irfa.2025.103964

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