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Macromomentum: Returns Predictability in Currencies and International Equity Indices

38 Pages Posted: 5 Apr 2003  

Sanjeev Bhojraj

Cornell University - Samuel Curtis Johnson Graduate School of Management

Bhaskaran Swaminathan

LSV Asset Management

Date Written: October 2002

Abstract

This study examines momentum and reversals in currencies and international equity market indices. We find momentum in country equity market indices during the first year after the portfolio formation date and reversals during the subsequent two years. We also find momentum in currencies up to three years after the portfolio formation date but no reversals. Positive currency momentum predicts low stock index returns in the future weakening momentum and strengthening reversals in U.S. dollar-denominated stock index returns. Additional tests show that countries with positive (negative) equity momentum experience declining (increasing) nominal federal fund rates in the first year after portfolio formation date and increasing (decreasing) interest rates in the subsequent two years. We discuss the implications of our findings for rational and behavioral theories.

Suggested Citation

Bhojraj, Sanjeev and Swaminathan, Bhaskaran, Macromomentum: Returns Predictability in Currencies and International Equity Indices (October 2002). Available at SSRN: https://ssrn.com/abstract=356940 or http://dx.doi.org/10.2139/ssrn.356940

Sanjeev Bhojraj (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Department of Accounting
Ithaca, NY 14853
United States
607-255-4069 (Phone)
607-254-4590 (Fax)

Bhaskaran Swaminathan

LSV Asset Management ( email )

155 North Wacker Drive
Chicago, IL 60606
United States

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