ICEF/LFE Research Seminar by Philippe Mueller (University of Warwick)
On Wednesday, June 27 ICEF and Laboratory of Financial Economics (LFE) held the Research Seminar in Finance.
Speaker: Professor Philippe Mueller (University of Warwick), LFE invited researcher
Theme: "24-Hour Currency Risk Premia"
Abstract: We dissect return dynamics in the foreign exchange market into different components over the 24 hour day and revisit well-known trading strategies such as carry and momentum. Using high-frequency data on G10 currencies we show that positive average returns for going long foreign currencies are almost entirely generated during U.S. main trading hours. During U.S. overnight periods on the other hand, all but one (the Yen) depreciate versus the U.S. dollar. Returns from the carry and dollar carry strategies are largely generated intraday, while momentum strategies are most profitable overnight. This new evidence sheds light on our understanding of currency markets and has important implications for future theoretical and empirical work.