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Currency Factors

We examine the ability of existing and new factor models to explain the comovements of G10 currency changes, measured using “currency baskets.” A clustering technique reveals a clear two-block structure in currency comovements, with the first block containing mostly the dollar currencies and the other the European currencies. A factor model incorporating this “clustering” factor and two additional factors, a commodity currency factor and a “world” factor based on trading volumes, fits currency basket correlations much better than extant factors, such as value and carry, do. In particular, it explains on average about 60% of currency variation and generates a root mean squared error relative to sample correlations of only 0.11. The model also fits comovements in emerging market currencies well. Economically, the correlations between currency baskets underlying the factor structure are inversely related to the physical distances between countries.

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Informasi Detail

Judul Seri

MANAGEMENT SCIENCE; Vol.68 No.6 June 2022

No. Panggil

-

Penerbit

: .,

Deskripsi Fisik

p. 4042-4064

Bahasa

English

ISBN/ISSN

-

Klasifikasi

NONE

Tipe Isi

-

Tipe Media

-

Tipe Pembawa

-

Edisi

-

Subjek

VALUE
CLUSTERING
FACTOR MODELS
CARRY
CURRENCY FACTORS
CURRENCY COMOVEMENTS
CURRENCY BASKETS
DOLLAR FACTOR
GLOBAL PRICING KERNELS

Info Detail Spesifik

https://doi.org/10.1287/mnsc.2021.4023

Pernyataan Tanggungjawab

Arash Aloosh, Geert Bekaert

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