Investor Attention to News on Financial Integration and Currency Returns

36 Pages Posted: 24 Feb 2023 Last revised: 8 May 2023

See all articles by Ilias Filippou

Ilias Filippou

Washington University in St. Louis - John M. Olin Business School

My T. Nguyen

Washington University in St Louis, John M. Olin Business School

Mark P. Taylor

Washington University in St. Louis - John M. Olin Business School; Centre for Economic Policy Research (CEPR); Brookings Institution

Date Written: February 20, 2023

Abstract

In this paper, we examine the economic value of a text-based measure of financial integration. Our attention measure of financial integration is a strong positive predictor of currency excess returns. Specifically, the financial integration measure is positively priced in the cross-section of currency excess returns. Thus, investors require a risk premium for holding currencies with high exposure to financial integration news. Our results are robust to alternative test assets, and the financial integration portfolios offer significant alphas when controlling for other currency investment strategies.

Keywords: financial integration, capital flows, news, textual analysis, foreign exchange market, currency returns, risk premium.

JEL Classification: F31, G11, G12, G14, G32.

Suggested Citation

Filippou, Ilias and T. Nguyen, My and Taylor, Mark P., Investor Attention to News on Financial Integration and Currency Returns (February 20, 2023). Available at SSRN: https://ssrn.com/abstract=4364178 or http://dx.doi.org/10.2139/ssrn.4364178

Ilias Filippou (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

My T. Nguyen

Washington University in St Louis, John M. Olin Business School ( email )

Room 274 Simon Hall
Washington University in St. Louis
St. Louis, MO 63130
United States
6188183228 (Phone)

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

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

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