The Value of Volume in Foreign Exchange

Event abstract

This seminar will investigate the information content of foreign exchange (FX) volume using a rich data set from the leading FX settlement platform. Consistent with theoretical predictions on the economic content of volume, we find that FX volume contains predictive information for both the time-series and cross-section of currency returns, which generates substantial economic value. A contrarian investment strategy that conditions on past daily volume generates an annualized return of over 19% and a Sharpe ratio of 1.82. We show the returns remain high after accounting for bid-ask spreads and are unrelated to other common currency strategies and risk factors.

Please find more details of Professor Lucio Sarno's paper available here.

Speaker biography

Lucio Sarno is Professor of Finance at Cass Business School, City, University of London, and a Research Fellow of the Centre for Economic Policy Research (CEPR). He previously held teaching and research positions at the University of Warwick, the University of Oxford and Columbia University. Lucio’s main research and teaching interests are in international finance, empirical asset pricing, and asset management. He also has broad interests in macroeconomics and its interaction with financial markets, especially the effects of monetary and exchange rate policy. He is the author over 80 articles, published in top finance journals such as the Journal of Finance, the Journal of Financial Economics and Review of Financial Studies, as well as general and top field journals in economics. He has authored and edited several books, including the Handbook of Exchange Rates (Wiley, 2012) and the graduate textbook The Economics of Exchange Rates (Cambridge University Press, 2003). His work is often featured or quoted in the press, including the Financial Times, the Wall Street Journal, and the New York Times.

Lucio's research has received funding from several agencies, including three ESRC grants and three INQUIRE grants, and has been awarded the Best Paper Prize for Investments by the Western Finance Association in 2013, and Best Paper Prizes by INQUIRE both in 2010 and 2011. In 2011, he was chosen by Poets & Quants to be among their “40 under 40”, a listing of the best 40 business schools professors under the age of 40. In addition to teaching and doing research, Lucio has been involved in policy advice, training, research and consulting projects for a number of institutions, including the International Monetary Fund, the European Central Bank, the Federal Reserve Banks of New York and St. Louis, the Bank of Canada, the Central Bank of Norway, the Italian Ministry of Economy and Finance, the World Bank, and the European Commission. He has wide-ranging consulting experience (over 15 years), involving some of the world's leading asset management firms, hedge funds, sovereign wealth funds, investment banks, and their research units, and has held senior positions outside academia, including as Director of Currency Research at AXA Investment Managers. He is currently a member of the Senior Advisory Board ("Consiglio degli Esperti") of the Department of the Treasury of Italy.