Journal of Financial Economics Vol. 136 No. 1 2020
Economic momentum and currency returns
Abstract
Past trends in fundamentals linked to economic activity and inflation predict currency returns. We find that a trading strategy that goes long currencies with strong economic momentum and short currencies with weak economic momentum exhibits an annualized Sharpe ratio of 0.70 and yields a significant alpha when controlling for standard carry, momentum, and value strategies. The economic momentum strategy subsumes the alpha of carry trades, suggesting that differences in past economic trends capture cross-country differences in carry.
- DOI
- 10.1016/j.jfineco.2019.09.002
- Volume
- 136
- Issue
- 1
- Pages
- 152-167
- Language
- en
- Sources
- crossref bibtex:phds-export.bib openalex