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!

Global Political Risk and Currency Momentum

Last Updated on 10 February, 2024 by Rejaul Karim

The research paper “Global Political Risk and Currency Momentum” by Ilias Filippou, Arie Eskenazi Gozluklu, and Mark P. Taylor presents a compelling investigation into the impact of global political risk on the currency momentum strategy.

By employing a measure of global political risk relative to the U.S. that encompasses unexpected political conditions, the study demonstrates the pricing of political risk in the cross-section of currency momentum, offering insights that surpass those provided by other risk factors.

Notably, the research’s robust findings persist even after accounting for transaction costs, reversals, and alternative limits to arbitrage. The compelling evidence put forth indicates that the global political landscape significantly influences the profitability of the momentum strategy in the foreign exchange market.

Investors utilizing such strategies are perceptibly compensated for exposure to the global political risk of the currencies they hold, amplifying the significance of past winners and the exploitation of lower returns in loser portfolios.

Abstract Of Paper

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 transaction costs, reversals and alternative limits to arbitrage. The global political environment affects the profitability of the momentum strategy in the foreign exchange market; investors following such strategies are compensated for the exposure to the global political risk of those currencies they hold, i.e., the past winners, and exploit the lower returns of loser portfolios.

Original paper – Download PDF

Here you can download the PDF and original paper of Global Political Risk and Currency Momentum.

(An option to download will come shortly)

Author

Ilias Filippou
Washington University in St. Louis – John M. Olin Business School

Arie Eskenazi Gozluklu
University of Warwick – Finance Group

Mark P. Taylor
Washington University in St. Louis – John M. Olin Business School; Centre for Economic Policy Research (CEPR); Brookings Institution

Conclusion

In conclusion, the research paper “Global Political Risk and Currency Momentum” by Ilias Filippou, Arie Eskenazi Gozluklu, and Mark P. Taylor sheds light on the intriguing interplay between global political risk and the currency momentum strategy.

The study’s compelling findings underscore the pricing of political risk in the cross-section of currency momentum, beyond the influence of other risk factors.

Even after considering transaction costs, reversals, and alternative limits to arbitrage, the research robustly demonstrates the impact of the global political environment on the profitability of the momentum strategy in the foreign exchange market.

The evidence indicates that investors employing such strategies are effectively compensated for bearing the global political risk associated with the currencies they hold, emphasizing the pivotal role of past winners and the exploitation of lower returns in loser portfolios.

This research imparts valuable implications for investors navigating the complex dynamics of currency momentum amid global political risk considerations.

Related Reading:

US Fiscal Cycle and the Dollar

Currency Management with Style

FAQ

Q1: What is the main focus of the research paper “Global Political Risk and Currency Momentum” by Ilias Filippou, Arie Eskenazi Gozluklu, and Mark P. Taylor?

A1: The main focus of the research paper is to investigate the impact of global political risk on the currency momentum strategy. The study employs a measure of global political risk relative to the U.S. that captures unexpected political conditions. It aims to demonstrate the pricing of political risk in the cross-section of currency momentum and assess whether such risk contains information beyond other risk factors.

Q2: What does the research reveal about the pricing of political risk in the cross-section of currency momentum?

A2: The research reveals that political risk is priced in the cross section of currency momentum. The study goes further to suggest that this pricing of political risk contains information beyond other risk factors, indicating that global political conditions play a significant role in influencing the profitability of the currency momentum strategy.

Q3: How robust are the findings of the research, considering factors such as transaction costs, reversals, and alternative limits to arbitrage?

A3: The findings of the research are reported to be robust. The study takes into account various factors that could affect the robustness of the results, including transaction costs, reversals, and alternative limits to arbitrage. Even after considering these factors, the research continues to provide compelling evidence of the impact of the global political environment on the profitability of the momentum strategy in the foreign exchange market.

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