Cross-Border M&A and Currency Returns

50 Pages Posted: 2 Nov 2020 Last revised: 14 Nov 2020

See all articles by Steven Riddiough

Steven Riddiough

University of Toronto

Huizhong Zhang

Queensland University of Technology - School of Economics and Finance

Date Written: October 9, 2020


We uncover a novel source of currency return predictability stemming from cross-border merger and acquisition (M&A) activity: abnormally large M&A inflows lead exchange rate appreciations, while depreciations follow unusually large M&A outflows. We show that a simple cross-sectional currency strategy exploiting this predictability generates a Sharpe ratio of over 0.70 and is orthogonal to existing currency strategies. The portfolio weights are found to coincide with local extremes in macroeconomic fundamentals: countries experiencing the largest abnormal M&A outflows are growing most above their economic growth trend - a pattern that reverses following portfolio formation - while the opposite reversal in macroeconomic fundamentals is observed in countries experiencing unusually large M&A inflows.

Keywords: currency returns, cross-border mergers and acquisitions, macroeconomic growth

JEL Classification: F31, G12, G15

Suggested Citation

Riddiough, Steven and Zhang, Huizhong, Cross-Border M&A and Currency Returns (October 9, 2020). Available at SSRN: or

Steven Riddiough (Contact Author)

University of Toronto ( email )

Toronto, Ontario M5S 3G8


Huizhong Zhang

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001

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