Momentum In Stock Market Returns: Implications For Risk Premia On Foreign Currencies

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.

Provided by: Swiss National Bank Topic: Big Data Date Added: Mar 2010 Format: PDF

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