Are carry, momentum and value still there in currencies?

Mark C. Hutchinson; Panagiotis E.  Kyziropoulos; John O'Brien; Philip O'Reilly; Tripti Sharma

doi:10.1016/j.irfa.2022.102245

Are carry, momentum and value still there in currencies?

Mark C. Hutchinson, Panagiotis E. Kyziropoulos, John O'Brien, Philip O'Reilly, Tripti Sharma

Queen's Business School (QBS)

Research output: Contribution to journal › Article › peer-review

2 Citations (Scopus)

69 Downloads (Pure)

Abstract

We show that carry, momentum and value predictability in currencies is associated with mispricing. Specifically, investment performance disappears subsequent to published evidence showing portfolio returns are not fully explained by risk. Replicating these studies, we show that the average out-of-sample Sharpe ratio decreases from +0.39 to -0.32. Cross sectional tests show that currencies no longer respond to interest rate and real exchange rate differentials. During this period currency excess returns do not exhibit autocorrelation. Our results are consistent with investors learning about mispricing from academic research.

Original language	English
Article number	102245
Journal	International Review of Financial Analysis
Volume	83
Early online date	29 Jun 2022
DOIs	https://doi.org/10.1016/j.irfa.2022.102245
Publication status	Published - Oct 2022

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10.1016/j.irfa.2022.102245Licence: CC BY

Are carry, momentum and value still there in currencies?
Copyright 2022 the authors. This is an open access article published under a Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium, provided the author and source are cited.
Final published version, 620 KBLicence: CC BY

The future of equity release schemes in the UK
Sharma, T. (Author), French, D. (Supervisor) & McKillop, D. (Supervisor), Dec 2019
Student thesis: Doctoral Thesis › Doctor of Philosophy

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@article{a0e1a06a0606472baedb1d50f835054b,

title = "Are carry, momentum and value still there in currencies?",

abstract = "We show that carry, momentum and value predictability in currencies is associated with mispricing. Specifically, investment performance disappears subsequent to published evidence showing portfolio returns are not fully explained by risk. Replicating these studies, we show that the average out-of-sample Sharpe ratio decreases from +0.39 to -0.32. Cross sectional tests show that currencies no longer respond to interest rate and real exchange rate differentials. During this period currency excess returns do not exhibit autocorrelation. Our results are consistent with investors learning about mispricing from academic research.",

author = "Hutchinson, {Mark C.} and Kyziropoulos, {Panagiotis E.} and John O'Brien and Philip O'Reilly and Tripti Sharma",

year = "2022",

month = oct,

doi = "10.1016/j.irfa.2022.102245",

language = "English",

volume = "83",

journal = "International Review of Financial Analysis",