Currency Momentum Strategies

Lukas Menkhoff, Lucio Sarno, Maik Schmeling and Andreas Schrimpf

Working Paper series from Rimini Centre for Economic Analysis

Abstract: We provide a broad empirical investigation of momentum strategies in foreign exchange markets. We find a significant cross-sectional spread in excess returns of up to 10% p.a. between past winner and loser currencies. This spread in excess returns is not explained by traditional risk factors and shows behavior consistent with investor over- and under-reaction. Moreover, currency momentum is mostly driven by return continuation in spot rates and has very different properties from the widely studied carry trade. However, there seem to be very effective limits to arbitrage which prevent momentum returns from being easily exploitable in foreign exchange markets.

Keywords: Momentum returns; Limits to Arbitrage; Idiosyncratic Volatility; Carry Trades (search for similar items in EconPapers)
JEL-codes: F31 G12 G15 (search for similar items in EconPapers)
Date: 2012-03
New Economics Papers: this item is included in nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (213)

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Related works:
Journal Article: Currency momentum strategies (2012)
Working Paper: Currency Momentum Strategies (2012)
Working Paper: Currency Momentum Strategies (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:09_12

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