U.S. Populist Rhetoric and Currency Returns
81 Pages Posted: 19 Jun 2020 Last revised: 8 Jan 2021
Date Written: May 26, 2020
We develop a novel measure of U.S. populist rhetoric. Aggregate Populist Rhetoric (APR) Index spikes around populist events. We decompose the APR Index into sub-indices. We show that APR Index and International Relations sub-index are negatively priced in the cross-section of currency excess returns. Currencies that perform well (badly) when U.S. populist rhetoric is high yield low (high) expected excess returns. Investors require high risk premium for holding currencies which under-perform in times of rising U.S. populist rhetoric, especially in the post-crisis period. A long-short strategy that buys (sells) currencies with high (low) exposure to U.S. populism offers strong diversification benefits.
Keywords: Populism, Foreign Exchange market, Textual Analysis
JEL Classification: G11, G12, G14, G32
Suggested Citation: Suggested Citation