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Communication Dans Un Congrès Année : 2015

Commodity Currencies Revisited

Résumé

I build an exchange rate strategy that trades currencies conditional on changes in the global prices of commodity indices; hence, termed “commodity strategy”. First, I document that commodity prices have signicant out-of-sample forecasting ability for the future exchange rates of several commodity exporters and importers at the daily frequency. However, I report that the reverse forecasting relationship does not survive out-of-sample testing. Second, I find a signicant cross-sectional spread, in both spot and excess returns, of 6% p.a. between the currencies that are predicted to appreciate and those that are predicted to depreciate. The returns appear to be uncorrelated to those of popular exchange rate strategies such as the carry trade and currency momentum. Furthermore, the spread in returns is not explained by traditional risk factors; however, it is partly accounted for by the strategy’s high transaction costs. Net probability can be restored by either implementing a simple market timing rule or by investing in developed markets with low costs and high liquidity.
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Dates et versions

hal-01453266 , version 1 (02-02-2017)

Identifiants

  • HAL Id : hal-01453266 , version 1

Citer

Evgenia Passari. Commodity Currencies Revisited. 32nd International Conference of the French Finance Association - AFFI 2015, Jun 2015, Cergy, France. pp.63. ⟨hal-01453266⟩
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