Currency Strategies and Sovereign Ratings

27 Pages Posted: 14 Nov 2016 Last revised: 29 Nov 2016

See all articles by Nina Karnaukh

Nina Karnaukh

Ohio State University; Fisher College of Business - Department of Finance

Date Written: June 28, 2016

Abstract

This paper investigates a link between the most popular currency strategies (carry trade, momentum, value) and sovereign ratings. I document that the profitability of the momentum strategy is large and significant among higher credit risk currencies, but is nonexistent among lower credit risk currencies. The profitability of currency momentum disappears when currencies rated BBB- or worse (16% of currency months) are excluded from the sample. The country credit risk conditions do not apply to the carry trade and value, which are profitable among lower and higher credit risk currencies. Sovereign rating changes do not have a significant impact on the performance of the most popular currency strategies.

Keywords: exchange rates, sovereign ratings, strategies, momentum

JEL Classification: F31, G12, G15, H63

Suggested Citation

Karnaukh, Nina, Currency Strategies and Sovereign Ratings (June 28, 2016). University of St.Gallen, School of Finance Research Paper No. 2016/20. Available at SSRN: https://ssrn.com/abstract=2868522 or http://dx.doi.org/10.2139/ssrn.2868522

Nina Karnaukh (Contact Author)

Ohio State University; Fisher College of Business - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
169
Abstract Views
1,037
rank
175,667
PlumX Metrics