We provide a broad empirical investigation of momentum strategies in the foreign exchange market. We find a significant cross-sectional spread in excess returns of up to 10% p.a. between past winner and loser currencies. This spread in excess returns is not explained by traditional risk factors,...

The forward premium anomaly has served as the theoretical foundation of positive returns from currency speculation. Nonlinearity in the relation of currency returns and interest rate differentials should be included in speculator expectations. Within narrow ranges, the counteracting effects of...

The relationship between trading volume and volatility in foreign exchange markets continues to be of much interest, especially given the higher than expected volatility of returns. Allowing for non-linearities, this paper tests competing hypotheses on the possible relationship between...

Using a broad data set of 20 US dollar exchange rates and order flow of institutional investors over 14 years, we construct a measure of global liquidity risk in the foreign exchange (FX) market. Our FX liquidity measure may be seen as the analogue of the well-known Pastor-Stambaugh liquidity...

Foreign exchange turnover evolves in a predictable fashion with increasing income. As income per capita rises, currency trading cuts loose from underlying current account transactions. In parallel, an increasing share of trading in the currency takes place outside the home country. At given...

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...

For the first time in 15 years, FX trading volumes contracted between two consecutive BIS Triennial Surveys. The decline in trading by leveraged institutions and "fast money" traders, and a reduction in risk appetite, have contributed to a significant drop in spot market activity. More active...

Using a measure of global political risk, relative to the U.S., that captures unexpected political conditions, we show that political risk is priced in the cross section of currency momentum and contains information beyond other risk factors. Our results are robust after controlling for...

In this paper we derive the measure of position-unwinding risk of currency carry trade portfolios from the currency option pricing model. The position-unwinding likelihood indicator is in nature driven by interest rate differential and currency volatility, and highly correlated with global...