Systematic Intervention and Currency Risk Premia

61 Pages Posted: 13 Feb 2018 Last revised: 24 Mar 2019

See all articles by Marcel Fratzscher

Marcel Fratzscher

DIW Berlin; Centre for Economic Policy Research (CEPR)

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin); Humboldt University of Berlin - Faculty of Economics

Lucio Sarno

University of Cambridge - Judge Business School; Centre for Economic Policy Research (CEPR)

Maik Schmeling

Goethe University Frankfurt - Department of Finance; Centre for Economic Policy Research (CEPR)

Tobias Stoehr

Kiel Institute for the World Economy; German Institute for Economic Research (DIW Berlin); IZA

Date Written: March 20, 2019

Abstract

Using data for the trades of 19 central banks intervening in currency markets, we show that stabilization policies by individual central banks lead to "systematic intervention" patterns. This systematic intervention is driven by and impacts on the same factors that drive currency excess returns: carry, momentum, value, and a dollar factor. The sensitivity of an individual central bank's intervention to these factors differs markedly across countries, with developed countries making a profit from intervention and emerging markets incurring large losses.

Keywords: Foreign exchange intervention, Currency risk, Carry, Momentum, Value

JEL Classification: F31, G10, G12

Suggested Citation

Fratzscher, Marcel and Menkhoff, Lukas and Sarno, Lucio and Schmeling, Maik and Stoehr, Tobias, Systematic Intervention and Currency Risk Premia (March 20, 2019). Available at SSRN: https://ssrn.com/abstract=3119907 or http://dx.doi.org/10.2139/ssrn.3119907

Marcel Fratzscher

DIW Berlin ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Humboldt University of Berlin - Faculty of Economics ( email )

Spandauer Strasse 1
Berlin
Germany

Lucio Sarno (Contact Author)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Maik Schmeling

Goethe University Frankfurt - Department of Finance ( email )

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, Hessen 60323
Germany

HOME PAGE: http://sites.google.com/site/maikschmeling/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Tobias Stoehr

Kiel Institute for the World Economy ( email )

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

IZA ( email )

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