Dissecting Currency Momentum

Shaojun Zhang

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: This paper shows that currency momentum, which cannot be explained by carry and dollar factors, summarizes the autocorrelation of these factors. A no-arbitrage model postulates that predictable global shock volatility can simultaneously generate factor and currency momentum. Empirically, carry and dollar factors are strongly autocorrelated and only earn significantly positive excess returns following positive factor returns. Future factor volatility drives out the autocorrelation. Factor momentum not only outperforms currency momentum but also explains it, whereas idiosyncratic returns do not generate momentum. Currency momentum longs the factors following positive factor returns and shorts the factors following losses.

JEL-codes: F0 F3 G0 G1 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-ore
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Journal Article: Dissecting currency momentum (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2020-15

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