Foreign Exchange News and Currency Reversals

64 Pages Posted: 19 Jun 2020

See all articles by Ilias Filippou

Ilias Filippou

Washington University in St. Louis - John M. Olin Business School

Mark P. Taylor

Washington University in St. Louis - John M. Olin Business School; Centre for Economic Policy Research (CEPR); Brookings Institution

Zigan Wang

The University of Hong Kong - School of Economics and Finance; Columbia University

Date Written: May 26, 2020

Abstract

Analyzing around 1.2 million FX-related news articles, we examine the cross-sectional predictive ability of FX news sentiment building an investment strategy that buys (sells) currencies with low (high) media sentiment. We find that this strategy offers positive and statistically significant returns, indicating a currency reversal that is associated with an overreaction of FX traders. In addition, low sentiment currencies attract more net buy (sell) orders based on number of trades (volume), implying that while smaller investors buy low-sentiment currencies, larger players sell them. Our results are robust to other determinants of currency premia.

Keywords: FX News, Currency Risk Premium, Currency Reversals

JEL Classification: F31, G11, O32, O34

Suggested Citation

Filippou, Ilias and Taylor, Mark P. and Wang, Zigan, Foreign Exchange News and Currency Reversals (May 26, 2020). Available at SSRN: https://ssrn.com/abstract=3610512 or http://dx.doi.org/10.2139/ssrn.3610512

Ilias Filippou (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Mark P. Taylor

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1156
St. Louis, MO 63130-4899
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

Zigan Wang

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

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