Dissecting currency momentum

Shaojun Zhang

Journal of Financial Economics, 2022, vol. 144, issue 1, 154-173

Abstract: This paper shows the cross-sectional and time series momentum in currencies, which cannot be explained by carry and dollar factors, summarize the autocorrelation of these factors. These momentum strategies long currency factors following positive factor returns and short them following losses. Carry and dollar factors are strongly autocorrelated and only earn significantly positive excess returns following positive factor returns. By contrast, idiosyncratic currency returns contain little momentum. Consequently, factor momentum not only outperforms the cross-sectional and time series momentum but also explains them. Limits to arbitrage and time-varying risk premium help explain factor momentum.

Keywords: Factor; Asset pricing; Momentum; Currency premium; Market efficiency (search for similar items in EconPapers)
JEL-codes: F31 F37 G12 G14 G15 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Dissecting Currency Momentum (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:144:y:2022:i:1:p:154-173

DOI: 10.1016/j.jfineco.2021.05.035

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