FX Momentum Risk Premia

FX Momentum is a well known and robust anomaly in the currency market. It is well documented and often explained by investors' irrationality, their under reaction to new information by failing to incorporate news in their transaction prices. Another explanation is that momentum investors are exploiting behavioural shortcomings in other investors, such as herding, investor over- and under-reaction and confirmation bias. The strategy captures the FX Momentum Risk Premia by going long /short developed and emerging market currencies using primarily currency spot and/or forward contracts based on a combination of price and volatility signals.

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