Swing Trading Signals


Since 2013

  • 100% Quantified, data-driven and Backtested
  • We always show our results!
  • Signals every day via our site or email
  • Cancel at any time!

Currency Returns in Different Time Zones

Last Updated on 10 February, 2024 by Rejaul Karim

The research paper “Currency Returns in Different Time Zones” authored by Zhengyang Jiang analyzes the intriguing dynamics of currency returns across various time zones, particularly highlighting the peculiar trend wherein European currencies exhibit positive average returns during US business hours and negative average returns during foreign business hours.

The study delves into a risk-based explanation, positing that the dissemination of news pertaining to US growth prospects primarily transpires during US business hours, thereby compelling US investors to demand elevated risk premia to uphold risky foreign currencies during these hours.

The research further establishes a direct correlation between a currency’s risk exposure and the disparity in its returns between US and foreign business hours, trenchantly enunciating that the gap widens for currencies with a heightened risk exposure and increased exchange rate volatility.

These insightful findings substantiate the intertwining of currency returns across disparate time zones with currency risk premia discernible at lower frequencies, thereby buttressing asset pricing models that incorporate recursive preferences and long-run risks.

Abstract Of Paper

European currencies have positive average returns during US business hours and negative average returns during foreign business hours. I propose a risk-based explanation: Because news about US growth prospects arrives mostly during US business hours, US investors require higher risk premia to hold risky foreign currencies in these hours. Consistent with this argument, I find the difference in a currency’s returns between US and foreign business hours widens if the currency has a higher risk exposure, and when its exchange rate becomes more volatile. These results connect currency returns in different time zones to currency risk premia observable at lower frequencies, and support asset pricing models with recursive preferences and long-run risks.

Original paper – Download PDF

Here you can download the PDF and original paper of Currency Returns in Different Time Zones.

(An option to download will come shortly)

Author

Zhengyang Jiang
Kellogg School of Management – Department of Finance; National Bureau of Economic Research (NBER)

Conclusion

In summation, the research paper “Currency Returns in Different Time Zones” penned by Zhengyang Jiang unravels a compelling account steeped in the captivating realm of currency returns traversing diverse time zones.

The study’s profound analysis delineates a contrasting trend pertaining to European currencies, evinced by their positive average returns during US business hours and negative average returns during foreign business hours.

This anomaly is attributed to a risk-based rationale, wherein the surge of news concerning the prospects of US growth transpires predominantly during US business hours, thereby compelling US investors to seek augmented risk premia to uphold risky foreign currencies during this timeframe.

The study adeptly delineates the nexus between a currency’s risk disposition and the divergence in its returns across varying time zones, accentuating that the chasm widens for currencies characterized by heightened risk exposure and augmented exchange rate volatility.

This pioneering research poignantly underscores the confluence of currency returns across distinct time zones with currency risk premia observable at lower frequencies, thereby lending robust credence to asset pricing models buoyed by recursive preferences and long-run risks.

Related Reading:

Momentum and Trend Following Trading Strategies for Currencies Revisited – Combining Academia and Industry

Are Value Strategies Profitable in the Foreign Exchange Market?

FAQ

Q1: What is the focus of the research paper “Currency Returns in Different Time Zones”?

A1: The research paper analyzes the dynamics of currency returns across different time zones, with a particular focus on the peculiar trend observed in European currencies. Specifically, European currencies exhibit positive average returns during US business hours and negative average returns during foreign business hours.

Q2: What is the proposed risk-based explanation for the observed currency return patterns?

A2: The proposed risk-based explanation suggests that news related to US growth prospects is predominantly disseminated during US business hours. As a result, US investors, during these hours, demand higher risk premia to hold risky foreign currencies. This risk-based explanation is put forth to account for the observed pattern in currency returns across different time zones.

Q3: How does the research establish a correlation between currency returns and risk exposure?

A3: The research establishes a direct correlation by showing that the difference in a currency’s returns between US and foreign business hours widens for currencies with higher risk exposure. Additionally, the correlation is strengthened when the exchange rate of a currency becomes more volatile. This suggests that the observed patterns are linked to a currency’s risk characteristics.

Check The Leading Resource On The Internet For Research And Academic Papers

Leave a Reply

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

Monthly Trading Strategy Club

$42 Per Strategy

>

Login to Your Account



Signup Here
Lost Password