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Momentum in stock market returns: implications for risk premia on foreign currencies

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  • Thomas Nitschka

Abstract

Momentum in foreign stock market returns signals currency excess returns. Portfolios of currencies from past stock market winner countries offer higher risk premia than past stock market loser currency portfolios. This pattern is unrelated to the currencies’ forward discounts. While recently proposed asset-pricing models for currency returns work reasonably well in explaining the time variation in the stock market momentum-sorted currency portfolio returns, rationalizing the average excess returns on these portfolios remains a challenge. Only the introduction of an ad-hoc motivated factor, extracted from the stock market momentum-sorted currency portfolio returns, helps in this respect.

Suggested Citation

  • Thomas Nitschka, 2013. "Momentum in stock market returns: implications for risk premia on foreign currencies," Applied Financial Economics, Taylor & Francis Journals, vol. 23(7), pages 551-560, April.
    • Handle: RePEc:taf:apfiec:v:23:y:2013:i:7:p:551-560
    DOI: 10.1080/09603107.2012.732686
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    Cited by:

    1. Atanasov, Victoria & Nitschka, Thomas, 2014. "Currency excess returns and global downside market risk," Journal of International Money and Finance, Elsevier, vol. 47(C), pages 268-285.

    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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