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政大典藏 > College of Commerce > Department of Money and Banking > Periodical Articles > Item 140.119/130733

Please use this identifier to cite or link to this item: https://nccur.lib.nccu.edu.tw/handle/140.119/130733

Title:	The sources of pricing factors underlying the cross-section of currency returns
Authors:	林建秀 Lin, Chien-Hsiu Chen, Chih-Nan
Contributors:	金融系
Keywords:	Carry trade;Momentum;Value;Equity volatility;Funding liquidity;Short rate
Date:	2019-10
Issue Date:	2020-07-21 15:25:58 (UTC+8)
Abstract:	We propose four factors, including carry, momentum, value as well as currency market risk factors in a risk-based asset pricing framework. By examining currency portfolios through time series and cross-sectional asset pricing, we validate that the four-factor model is capable of capturing the excess returns to these portfolios. Next, to understand the economic forces behind the carry, momentum and value factors, we investigate the linkages of these three factors to several fundamental variables. Our results indicate that the carry factor is linked to innovations in equity volatility and liquidity risk, whilst the momentum one is linked to innovations in equity volatility, funding liquidity risk and lagged short rate, whereas the value factor is linked to innovations in equity volatility, lagged term spread and lagged default spread. Whilst investors require compensation for a carry strategy that performs poorly when global market conditions deteriorate, they will pay for a momentum strategy that performs well under these circumstances. Positive innovations in equity volatility, an increase in funding liquidity risk and lagged short rate are good proxies for such periods.
Relation:	Quarterly Review of Economics and Finance
Data Type:	article
DOI link:	https://doi.org/10.1016/j.qref.2019.10.002
DOI:	10.1016/j.qref.2019.10.002
Appears in Collections:	[Department of Money and Banking] Periodical Articles

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