Currency strategies based on momentum, carry trade and skewness.

Abstract This paper documents that momentum, carry trade, and skewness strategies do not contain exactly the same information, which inspires us to construct a novel, triple-screen strategy and test its profitability. We first investigate the properties of payoffs to the above three currency speculation strategies. We then conduct double sorting and cross-sectional regression analyses to disentangle these strategies and find that they are not completely overlapping. Finally, we combine the momentum, carry trade, and skewness strategies to create a triple-screen strategy. The results show that triple-screen strategies generally perform better than single- and double-screen strategies. Our empirical findings are also robust to subsamples (advanced, emerging, non-Euro and Group of Twenty economies). Our research findings provide experimental investigation on the effectiveness of combining momentum, carry trade, and skewness strategies, as well as ways to bring more benefits to investors. Highlights • We construct a novel, triple-screen strategy and test its profitability. • Double sorting and cross-sectional regression analyses are conducted. • Three currency speculation strategies are not completely overlapping. • Triple-screen strategies generally perform better than single- and double-screen strategies. • Results are robust to subsamples (advanced, emerging, non-Euro and G20 economies). [ABSTRACT FROM AUTHOR]