Abstract

http://ssrn.com/abstract=1809776
 
 

References (145)



 
 

Citations (16)



 


 



Currency Momentum Strategies


Lukas Menkhoff


Leibniz Universitaet Hannover - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Lucio Sarno


City University London - Sir John Cass Business School; Centre for Economic Policy Research (CEPR)

Maik Schmeling


City University London - Sir John Cass Business School

Andreas Schrimpf


Bank for International Settlements (BIS) - Monetary and Economic Department

November 7, 2011


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% 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 over-reaction. 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 which prevent momentum returns from being easily exploitable in currency markets.

Number of Pages in PDF File: 86

Keywords: Momentum returns, Limits to Arbitrage, Idiosyncratic Volatility, Carry Trades

JEL Classification: F31, G12, G15

working papers series


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Date posted: April 21, 2011 ; Last revised: November 7, 2011

Suggested Citation

Menkhoff, Lukas and Sarno, Lucio and Schmeling, Maik and Schrimpf, Andreas, Currency Momentum Strategies (November 7, 2011). Available at SSRN: http://ssrn.com/abstract=1809776 or http://dx.doi.org/10.2139/ssrn.1809776

Contact Information

Lukas Menkhoff
Leibniz Universitaet Hannover - Department of Economics ( email )
Koenigsworther Platz 1
30167 Hannover
Germany
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
Lucio Sarno (Contact Author)
City University London - Sir John Cass Business School ( email )
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Maik Schmeling
City University London - Sir John Cass Business School ( email )
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
Andreas Schrimpf
Bank for International Settlements (BIS) - Monetary and Economic Department ( email )
Centralbahnplatz 2
CH-4002 Basel
Switzerland
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References:  145
Citations:  16

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