Momentum in stock market returns: Implications for risk premia on foreign currencies

Thomas Nitschka

No 2010-11, Working Papers from Swiss National Bank

Abstract: Momentum in foreign stock market returns is exploitable as signal of currency excess returns. Past stock market winner currencies offer higher returns than past stock market loser currencies. This finding is unrelated to interest rate differentials. Funding liquidity risk explains the time series variation in foreign stock market momentum sorted currency portfolio returns. Their cross-sectional dispersion is hardly rationalized by systematic risk factors in contrast to forward discount and currency momentum sorted currency portfolios. This latter finding reflects that fundamentals driving stock market momentum based currency portfolio returns are not related to recently proposed currency risk factors in the cross-section.

Keywords: currency returns; expected return news; intrinsic value; momentum; risk premia; stock market returns (search for similar items in EconPapers)
JEL-codes: F31 F37 G15 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:snb:snbwpa:2010-11

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