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Do terrorist attacks matter for currency excess returns?

Author

Listed:
  • Liu, Yiye
  • Han, Liyan
  • Wu, You
  • Yin, Libo

Abstract

This paper provides a novel investigation into how currency excess returns react to terrorist attacks. We construct a terrorism risk factor and demonstrate that it significantly matters to excess returns of both carry trade and individual currencies. Furthermore, we form a currency portfolio by simply buying terrorism-sensitive currencies and selling less terrorism-sensitive currencies, which yields economically positive and statistically significant returns. It has shown that this newly proposed terrorism risk factor could provide a marginal improvement for exchange rate pricing facing terrorist attacks.

Suggested Citation

  • Liu, Yiye & Han, Liyan & Wu, You & Yin, Libo, 2022. "Do terrorist attacks matter for currency excess returns?," Finance Research Letters, Elsevier, vol. 49(C).
    • Handle: RePEc:eee:finlet:v:49:y:2022:i:c:s1544612322003130
    DOI: 10.1016/j.frl.2022.103087
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    More about this item

    Keywords

    Terrorist attacks; Excess returns; Carry trade; FX markets;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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