Curve momentum in currency markets

We propose a curve momentum strategy related to the carrying costs changes in currency markets. The findings suggest that curve momentum yields a significantly positive excess return and spot premium at both country level and portfolio level. Consistent with the literature, the subprime crisis shocks this strategy, while the profitability has markedly strengthened in the more recent years. By employing the pooled panel regression approach, evidence shows that the cross-curve momentum signal is a powerful predictor in the recent period. More importantly, conventional momentum factors, such as carry trade and momentum, do not price the curve momentum, even when controlling the business cycle state variables. In this paper, we contribute to the empirical asset pricing studies by making use of term structure information.