Currency portfolios and global foreign exchange ambiguity

Takao Asano, Xiaojing Cai and Ryuta Sakemoto

Finance Research Letters, 2024, vol. 65, issue C

Abstract: This study investigates whether cross-sectional global foreign exchange (FX) ambiguity impacts currency portfolios. We observe that, in contrast to FX volatility, high FX ambiguity leads to high currency carry returns. We also reveal that FX ambiguity is weakly associated with the highest interest rate portfolio, but strongly related to the second highest interest rate portfolio. These results suggest that FX ambiguity captures elements of uncertainty that are not captured by FX volatility. In addition, FX ambiguity is not linked to returns on currency momentum and value portfolios.

Keywords: Currency portfolio; Ambiguity; Carry trades; FX volatility (search for similar items in EconPapers)
JEL-codes: F31 G11 G15 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:65:y:2024:i:c:s1544612324005646

DOI: 10.1016/j.frl.2024.105534

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