Published papers

 Understanding FX Liquidity  with Angelo Ranaldo and Paul Söderlind

The Review of Financial Studies, 28 (11), 2015, 3073-3108

We provide a comprehensive study of the liquidity of spot foreign exchange (FX) rates over more than two decades and a large cross-section of currencies. First, we show that FX liquidity can be accurately measured with daily and readily available data. Second, we demonstrate that FX liquidity declines with funding constraints and global risk, supporting theoretical models relating funding and market liquidity. In these distressed circumstances, liquidity tends to evaporate more for developed and riskier currencies. Finally, we show stronger comovements of FX liquidities in distressed markets, especially when funding is constrained, volatility is high, and FX speculators incur losses. 

Links: Internet Appendix Data (FX liquidity) and instuctions SSRN | RFS | VoxEU | BIS quartely review (Dec 2016, p.49)

Talks: Financial Economics Workshop, Lund, 2013 | Measuring and Modeling Financial Risk with High Frequency Data Workshop, Florence, 2013 |

            Aarhus University, 2013 Financial Determinants of Exchange Rates Workshop, Rome, 2013 | SGF Conference, Zürich, 2014 | 

            SNB-UZH Workshop, Zürich, 2014 Microstructure of Financial Markets Workshop, Rome, 2014 | AFA, Boston, 2015

Working papers

The Dollar Ahead of FOMC Target Rate Changes      

Prize for the best dissertation in PhD Program in Economics and Finance (PEF) 2017, St. Gallen

I find that the U.S. dollar appreciates over the two-day period before contractionary monetary policy decisions at scheduled Federal Open Market Committee (FOMC) meetings and depreciates over the two-day period before expansionary monetary policy decisions. The federal funds futures rate forecasts these dollar movements with a 22% R-squared. A high federal funds futures spread three days in advance of an FOMC meeting not only predicts the target rate rise, but also predicts a rise in the dollar over the subsequent two-day period. A simple trading strategy, which exploits this predictability, exhibits a 0.93 Sharpe ratio. My findings imply that information about monetary policy changes is reflected first in the fixed income markets, and only later becomes reflected in currency markets.

Links: SSRN

Talks: Wharton School, 2016 | Philadelphia Federal Reserve Bank, 2016 | University of Mannheim, 2016 University of St. Gallen, 2016 |

             Goethe University Frankfurt, 2016 | HEC Lausanne, 2016 | AFA PhD poster session, 2017 | Midwest Finance Association, 2017 |

          Southern Methodist University, 2017 | Norwegian School of Economics, 2017 | Stockholm School of Economics, 2017 WashU in St. Louis, 2017 |

             Ohio State University, 2017 | University of Oregon, 2017 | Cornerstone Research, 2017 | University of Virginia (McIntire), 2017 |

          Macro Finance Modeling summer session, 2017 | Multinational Finance Society, 2018 | Australian Finance and Banking Conference, 2018 |

          New Zealand Finance Meeting, 2018

Growth Forecasts and News About Future Monetary Policy
R&R, Journal of Financial Economics

I find that 30-minute changes in bond yields around scheduled Federal Open Market Committee (FOMC) announcements are predictable with the pre-FOMC Blue Chip professionals' revisions in GDP growth forecasts. A positive pre-FOMC GDP growth revision predicts a contractionary policy news shock (positive change in bond yields), a negative GDP growth revision predicts an expansionary policy news shock (negative change in bond yields). Failing to account for this predictability biases the estimates of monetary policy effects on the economy. First, the Fed's information effect dissipates as the truly unpredictable policy news shock does not affect professionals' beliefs about the economy. Second, net policy shock has a more negative impact on future actual GDP, than the raw policy shock.


Links: SSRN

Talks: Oxford-NY Fed Monetary Economics Conference, 2019 | Bank of Japan, 2019 Australian Finance and Banking Conference, 2019 |

          Midwest Finance Association Conference, 2020

Currency Strategies and Sovereign Ratings

This paper investigates a link between the most popular currency strategies (carry trade, momentum, value) and sovereign ratings. I document that the profitability of the momentum strategy is large and significant among higher credit risk currencies, but is nonexistent among lower credit risk currencies. The profitability of currency momentum disappears when currencies rated BBB- or worse (16% of currency months) are excluded from the sample. The country credit risk conditions do not apply to the carry trade and value, which are profitable among lower and higher credit risk currencies. Sovereign rating changes do not have a significant impact on the performance of the most popular currency strategies.

Links: SSRN | Portfolio formation of higher and lower credit risk countries, currency momentum, carry trade (videos)

Talks: University of St. Gallen, 2015 | Financial Economics Workshop, Lund, 2015 | Wharton School, 2015