Currency momentum strategies

Does Option‐Implied Cross‐Sectional Return Dispersion Forecast Realized Cross‐Sectional Return Dispersion? Evidence From the G10 Currencies

“…Whereas Chichernea et al (2015) and Stivers and Sun (2010) focus on the equity market alone, our paper focuses exclusively on the currency market. This is an important extension of the previous literature because Menkhoff, Sarno, Schmeling, and Schrimpf (2012) emphasize that foreign exchange markets are more liquid than equity markets, and feature huge transaction volumes and low trading costs. More precisely, according to the Bank of International Settlement, the average daily turnover of the FX market measured in April 2013 amounted to USD 5.345 billion compared to USD 468 billion in the equity markets, which highlights the importance of the FX markets in terms of turnover.…”

Forecasting Disconnected Exchange Rates

“…Although not an economic model per se, a lag of the change of the exchange rate is included in the model. Momentum gives the model a dynamic structure and is a signal that produces economically significant returns to many assets, including foreign exchange (Burnside et al, 2011;Menkhoff et al, 2012).…”

Higher Moments and Exchange Rate Behavior

“…In this literature, profitability of exchange rate trading has been analyzed from different perspectives, dominated mostly by the momentum trading strategies and technical trading rules. See, among others, Levich and Thomas (1993), Taylor (1994), Kho (1996), Lee and Mathur (1996), LeBaron (1999), Raj (2000), Okunev and White (2003), Mende and Menkhoff (2006), Harris andYilmaz (2009), Menkhoff, Sarno, Schmeling andSchrimpf (2012), Narayan, Mishra, Narayan and Thuraisamy (2015), and Taylor and Allen (1992). The main message from this literature is that the exchange rate market is profitable.…”