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Currency strategies based on momentum, carry trade and skewness

Xue Jiang, Liyan Han and Libo Yin

Physica A: Statistical Mechanics and its Applications, 2019, vol. 517, issue C, 121-131

Abstract: This paper documents that momentum, carry trade, and skewness strategies do not contain exactly the same information, which inspires us to construct a novel, triple-screen strategy and test its profitability. We first investigate the properties of payoffs to the above three currency speculation strategies. We then conduct double sorting and cross-sectional regression analyses to disentangle these strategies and find that they are not completely overlapping. Finally, we combine the momentum, carry trade, and skewness strategies to create a triple-screen strategy. The results show that triple-screen strategies generally perform better than single- and double-screen strategies. Our empirical findings are also robust to subsamples (advanced, emerging, non-Euro and Group of Twenty economies). Our research findings provide experimental investigation on the effectiveness of combining momentum, carry trade, and skewness strategies, as well as ways to bring more benefits to investors.

Keywords: Momentum; Carry trade; Skewness; Currency excess returns (search for similar items in EconPapers)
Date: 2019
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Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

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