Global Uncertainty and the Cross-Section of FX Returns

30 Pages Posted: 28 Mar 2024

See all articles by Asja Bosnic

Asja Bosnic

BI Norwegian Business School

Date Written: September 7, 2023


I analyze the impact of global uncertainty on a cross-section of currency portfolios. I sort 48 currencies into six portfolios by their forward discount, and find that when policy uncertainty is high, the carry trade strategy unwinds.

A two-factor model with the factor-mimicking GEPU prices the cross-section of currency returns better than two-factor models using other news-based risk factors and FX volatility. I exclude the impact of U.S. uncertainty on the global measure, and show that U.S. economic policy uncertainty does not have a defining role in pricing the cross-section of currency returns.

Keywords: International finance, empirical finance, cross-section of FX returns

JEL Classification: B17, F30, F31, F37, F65, G15

Suggested Citation

Bosnic, Asja, Global Uncertainty and the Cross-Section of FX Returns (September 7, 2023). Available at SSRN: or

Asja Bosnic (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442

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