Are Carry, Momentum and Value Still There in Currencies?

36 Pages Posted: 3 Feb 2022 Last revised: 12 Jul 2022

See all articles by Mark C. Hutchinson

Mark C. Hutchinson

University College Cork

Panagiotis Kyziropoulos

University College Cork - Cork University Business School

John O'Brien

University College Cork - Department of Accounting, Finance and Information Systems; University College Cork - Cork University Business School

Philip O'Reilly

University College Cork - Cork University Business School

Tripti Sharma

Queen's Management School, Queen's University Belfast

Date Written: May 20, 2022

Abstract

We show that carry, momentum and value predictability in currencies is associated with mispricing. Specifically, investment performance disappears subsequent to published evidence showing portfolio returns are not fully explained by risk. Replicating these studies, we show that the average out-of-sample Sharpe ratio decreases from +0.39 to -0.32. Cross sectional tests show that currencies no longer respond to interest rate and real exchange rate differentials. During this period currency excess returns do not exhibit autocorrelation. Our results are consistent with investors learning about mispricing from academic research.

Keywords: Currency return predictability, Carry, Momentum, Time series momentum, Cross sectional momentum, Value

JEL Classification: F31, G14, G19

Suggested Citation

Hutchinson, Mark C. and Kyziropoulos, Panagiotis and O'Brien, John and O'Reilli, Philip and Sharma, Tripti, Are Carry, Momentum and Value Still There in Currencies? (May 20, 2022). International Review of Financial Analysis, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4024296 or http://dx.doi.org/10.2139/ssrn.4024296

Mark C. Hutchinson (Contact Author)

University College Cork ( email )

O'Rahilly Building
College Road
Cork
Ireland

Panagiotis Kyziropoulos

University College Cork - Cork University Business School ( email )

West Wing, Main Quadrangle, College Road
Cork
Ireland

John O'Brien

University College Cork - Department of Accounting, Finance and Information Systems ( email )

O'Rahilly Building
College Road
Cork
Ireland

University College Cork - Cork University Business School ( email )

West Wing, Main Quadrangle, College Road
Cork
Ireland

Philip O'Reilli

University College Cork - Cork University Business School ( email )

West Wing, Main Quadrangle, College Road
Cork
Ireland

Tripti Sharma

Queen's Management School, Queen's University Belfast ( email )

Riddel Hall
185 Stranmillis Road
Belfast, BT9 5EE
United Kingdom

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