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Common macro factors and currency premia
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Filippou, Ilias and Taylor, Mark P. (2017) Common macro factors and currency premia. Journal of Financial and Quantitative Analysis, 52 (4). pp. 1731-1763. doi:10.1017/S0022109017000424 ISSN 0022-1090.
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Official URL: https://doi.org/10.1017/S0022109017000424
Abstract
We study the role of domestic and global factors in the payoffs of portfolios mimicking carry, dollar-carry, and momentum strategies. Using factors summarizing large data sets of macroeconomic and financial variables, we find that global equity-market factors are predictive for carry-trade returns, whereas U.S. inflation and consumption variables drive dollar-carry-trade payoffs, momentum returns are predominantly driven by U.S. inflation factors, and global factors capture the countercyclical nature of currency premia. We also find predictability in the exchange-rate component of each strategy and demonstrate strong economic value for risk-averse investors with mean-variance preferences, regardless of base currency.
Item Type: | Journal Article | ||||||||
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Subjects: | H Social Sciences > HG Finance | ||||||||
Divisions: | Faculty of Social Sciences > Warwick Business School | ||||||||
Library of Congress Subject Headings (LCSH): | Foreign exchange, Carry trades (Foreign exchange) | ||||||||
Journal or Publication Title: | Journal of Financial and Quantitative Analysis | ||||||||
Publisher: | Cambridge University Press | ||||||||
ISSN: | 0022-1090 | ||||||||
Official Date: | August 2017 | ||||||||
Dates: |
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Volume: | 52 | ||||||||
Number: | 4 | ||||||||
Page Range: | pp. 1731-1763 | ||||||||
DOI: | 10.1017/S0022109017000424 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||
Date of first compliant deposit: | 6 April 2016 | ||||||||
Date of first compliant Open Access: | 6 April 2016 | ||||||||
Funder: | Economic and Social Research Council (Great Britain) (ESRC) |
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