Work

Understanding the Performance of Currency Basis‐Momentum

Year: 2025

Type: article

Abstract: ABSTRACT We conduct an in‐depth analysis of basis momentum (BM) in currency markets and examine its relationship with key market anomalies. We find that BM strategies generate significant excess returns across various formation periods. These abnormal returns are not fully explained by the closely related carry and momentum factors. By decomposing the BM signal, we show that both carry‐ and momentum‐related components contribute to the returns of BM strategies. Compared to carry trade, BM strategies exhibit significantly lower risk, leading to superior risk‐adjusted performance.

Source: European Financial Management

DOI: 10.1111/eufm.12555

Authors: Minyou Fan, Xing Han, Ang Li, Jiadong Liu

Institutions: Queen's University Belfast, University of Auckland

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,350

Funder: Southwestern University of Finance and Economics