CHAPTER 12

Carry, Momentum and Value in Currencies

The three classic FX factors

Opening question

“Can I earn a premium by holding high-yield currencies?”

In this chapter

What a factor strategy is, and why currency factors are long–short by nature
The carry trade: borrowing low and investing high, with a worked example
Why carry has paid, despite what uncovered interest parity predicts
Carry crashes: how and why high-yield currencies fall together
Momentum and trend following in currencies
Value: buying currencies that are cheap relative to purchasing power parity
Building and combining factor portfolios, with an illustrative ranking
What these factors mean for investors and households in Vietnam and Asia

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This chapter is in the full book

Chapter 1 is free to read online. The full text of chapter 12 — with its tables, figures, worked examples and practice lab — is available in the complete edition of Forex and Crypto Investing: From Theory to Practice (Volume 3, NXW Investment Library).

Read Chapter 1 free Get the full book — contact@nxw.vn

Sections of this chapter

12.1 Factors in the currency market

12.2 Carry: borrow low, invest high

12.3 Why carry has paid

12.4 Carry crashes

12.5 Momentum and trend following

12.6 Value: purchasing power parity as an anchor

12.7 Building factor portfolios

12.8 Combining the factors

12.9 Costs, crowding and implementation

12.10 Factors seen from Vietnam and Asia

← Chapter 11: Risk, Volatility and Correlation in FX and Crypto Chapter 13: Currency Hedging for Investors and Companies →