FX Premia Around The Clock

Ingomar Krohn, Philippe Mueller, Paul Whelan

Research output: Contribution to conferencePosterResearchpeer-review

Abstract

We dissect return dynamics in the foreign exchange market into high-frequency components over the 24-hour day. Using twenty-four years of data on G10 currencies we unveil a distinct ‘W’ intraday pattern of returns to the dollar portfolio. We show that positive average returns for going long foreign currencies are almost entirely generated during U.S. main trading hours, whereas currencies collectively depreciate against the U.S. dollar overnight. Moreover, we document that 75% of the HML portfolio returns from a standard carry trade strategy and almost 80% of dollar carry returns are generated during the U.S. trading day. Finally, we show that our main result may be exploitable by investors that are able to benefit from lower than average transaction costs.
Original languageEnglish
Publication date2019
Publication statusPublished - 2019
EventThe 79th Annual Meeting of American Finance Association. AFA 2019 - Hilton Atlanta, Atlanta, United States
Duration: 4 Jan 20196 Jan 2019
Conference number: 79
https://editorialexpress.com/conference/AFA2019/program/AFA2019.html

Conference

ConferenceThe 79th Annual Meeting of American Finance Association. AFA 2019
Number79
LocationHilton Atlanta
CountryUnited States
CityAtlanta
Period04/01/201906/01/2019
Internet address

Keywords

  • Foreign-exchange
  • Carry trade
  • High-frequency data
  • Intraday and overnight returns
  • Funding costs

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