FX initiative research

We challenge the idea that big currency moves are random, showing option prices often signal them in advance and can guide trading.

We study how unexpected US interest rate decisions affect different currencies, showing some are more sensitive and earn higher returns.

We show currencies whose options signal greater downside risk earn higher average returns, highlighting skewness as a key currency risk.

We link countries’ trade-imbalance networks to currency returns, showing currencies in more central positions earn higher risk-adjusted returns.

Re-examining proposed currency risk factors, we find a few core forces – dollar, carry, momentum, volatility and liquidity – matter most.

We model how markets switch between normal and bear states, showing common risk factors work differently and earn different rewards across regimes.