Currency momentum strategies

  • Menkhoff L
  • Sarno L
  • Schmeling M
 et al. 
  • 220

    Readers

    Mendeley users who have this article in their library.
  • 65

    Citations

    Citations of this article.

Abstract

We provide a broad empirical investigation of momentum strategies in the foreign exchange market. We find a significant cross-sectional spread in excess returns of up to 10% per annum (p.a.) between past winner and loser currencies. This spread in excess returns is not explained by traditional risk factors, it is partially explained by transaction costs and shows behavior consistent with investor under- and overreaction. Moreover, cross-sectional currency momentum has very different properties from the widely studied carry trade and is not highly correlated with returns of benchmark technical trading rules. However, there seem to be very effective limits to arbitrage that prevent momentum returns from being easily exploitable in currency markets. © 2012 Elsevier B.V.

Author-supplied keywords

  • Carry trades
  • Idiosyncratic volatility
  • Limits to arbitrage
  • Momentum returns

Get free article suggestions today

Mendeley saves you time finding and organizing research

Sign up here
Already have an account ?Sign in

Find this document

Get full text

Authors

Cite this document

Choose a citation style from the tabs below

Save time finding and organizing research with Mendeley

Sign up for free