Currency · Global · CFDs, forwards, futures · Monthly · Global Free

Financial Integration and Currency Returns

Academic paper

Investor Attention to News on Financial Integration and Currency Returns

AuthorsIlias Filippou; My T. Nguyen; Mark P. Taylor

Institute

Florida State University
Washington University in St. Louis
?Washington University in St. Louis - John M. Olin Business School
?Washington University in St Louis, John M. Olin Business School
Brookings Institution
Centre for Economic Policy Research
?Centre for Economic Policy Research (CEPR)

Paper linkhttps://papers.ssrn.com/sol3/papers.cfm?abstract_id=4364178

Strategy in a nutshell

The strategy ranks currencies against the U.S. dollar based on their attention to financial integration (AFI) in news articles. Portfolios are formed monthly into quintiles, and a long-short HML portfolio goes long low-AFI currencies and short high-AFI currencies.

Economic rationale

Currencies with higher exposure to financial integration news demand a risk premium, offering higher expected returns. The AFI-based approach consistently generates robust and significant alphas, outperforming traditional risk-factor strategies.

Backtest performance

Annualised return5.28%

Volatility11%

Sharpe ratio0.48