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Currency portfolios and global foreign exchange ambiguity

Author

Listed:
  • Asano, Takao
  • Cai, Xiaojing
  • Sakemoto, Ryuta

Abstract

This study investigates whether cross-sectional global foreign exchange (FX) ambiguity impacts currency portfolios. We observe that, in contrast to FX volatility, high FX ambiguity leads to high currency carry returns. We also reveal that FX ambiguity is weakly associated with the highest interest rate portfolio, but strongly related to the second highest interest rate portfolio. These results suggest that FX ambiguity captures elements of uncertainty that are not captured by FX volatility. In addition, FX ambiguity is not linked to returns on currency momentum and value portfolios.

Suggested Citation

  • Asano, Takao & Cai, Xiaojing & Sakemoto, Ryuta, 2024. "Currency portfolios and global foreign exchange ambiguity," Finance Research Letters, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:finlet:v:65:y:2024:i:c:s1544612324005646
    DOI: 10.1016/j.frl.2024.105534
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    More about this item

    Keywords

    Currency portfolio; Ambiguity; Carry trades; FX volatility;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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