U.S. Populist Rhetoric and Currency Returns
87 Pages Posted: 28 Jul 2020 Last revised: 16 Aug 2020
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U.S. Populism and Currency Risk Premia
Date Written: July 2020
Abstract
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 underperform 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: Foreign exchange market, populism, textual analysis
JEL Classification: G11, G12, G14, G32
Suggested Citation: Suggested Citation
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