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Market news co-moments and currency returns

Author

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  • Mohammadreza Tavakoli Baghdadabad

    (Australian National Institute of Management and Commerce (IMC))

  • Girijasankar Mallik

    (Business School, Western Sydney University)

Abstract

We propose three co-moments of the market returns’ cash-flow, and discount-rate shocks and examine empirically an intertemporal capital asset pricing model using the co-moments on currency returns as well as stock returns during Dec. 1983 to Dec. 2017. We find that our proposed model has explanatory power for both currency and stock portfolios. We find several common sources of market risk in currency and stock returns that are reflected in market news. Our findings show that the co-moments are related to currency risk premiums and outperform the well-known liquidity, dollar and HML risk factors.

Suggested Citation

  • Mohammadreza Tavakoli Baghdadabad & Girijasankar Mallik, 2021. "Market news co-moments and currency returns," Empirical Economics, Springer, vol. 61(4), pages 1819-1863, October.
    • Handle: RePEc:spr:empeco:v:61:y:2021:i:4:d:10.1007_s00181-020-01951-y
    DOI: 10.1007/s00181-020-01951-y
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    More about this item

    Keywords

    Market news; Cash-flow; Discount rate; Risk co-moments;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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