Dissecting Currency Momentum

50 Pages Posted: 28 Jan 2021 Last revised: 13 Mar 2024

Multiple version iconThere are 2 versions of this paper

Date Written: January 27, 2021


This paper shows that the cross-sectional and time series momentum in currencies, which cannot be explained by carry and dollar factors, summarize the autocorrelation of these factors. These momentum strategies long currency factors following positive factor returns and short them following losses. Carry and dollar factors are strongly autocorrelated and only earn significantly positive excess returns following positive factor returns. In contrast, idiosyncratic currency returns contain little momentum. Consequently, factor momentum not only outperforms the cross-sectional and time series momentum but also explains them. Limits to arbitrage and time-varying risk premium help explain factor momentum.

Keywords: momentum, time series momentum, return, factor, exchange rate

JEL Classification: F0, F3, G0, G1

Suggested Citation

Zhang, Shaojun, Dissecting Currency Momentum (January 27, 2021). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3759017 or http://dx.doi.org/10.2139/ssrn.3759017

Shaojun Zhang (Contact Author)

The Ohio State University

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://sites.google.com/view/zhangshaojun

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics