Exchange Rates and Commodity Prices

Seminar abstract

In this study, an exchange rate strategy is built that trades currencies conditional on changes in the global prices of commodity indices; hence, termed "commodity strategy".

First, it is documented that commodity prices have significant out-of-shape predictive ability for the future exchange rates of several commodity exporters and importers at the daily frequency. However, it is reported that the reverse forecasting relationship does not survive out-of-sample testing.

Secondly, it is found that significant cross-sectional spread in both spot and excess returns of 6 percent p.a. between the currencies that are predicted to appreciate and those that are predicted to depreciate. The returns appear to be uncorrelated to those of popular exchange rate strategies such as the carry trade and currency momentum.

Furthermore, the spread in returns is not explained by traditional risk factors; however, it is partly accounted for by the strategy's high transaction costs. Net profitability can be restored by either implementing a simple market timing rule or by investing in developed markets with low costs and high liquidity.

Booking

This event is free to attend and there is no need to book in advance. Please feel free to bring along friends, colleagues and classmates.

Speaker bio

Dr Evgenia Passari is an Assistant Professor in Financial Economics at Université Paris-Dauphine.

She holds a BSc in Banking and Financial Management from the University of Piraeus, Greece, an MSc in Economics and Finance from Warwick Business School, and a PhD in Finance from Cass Business School.

Before completing her doctorate in 2013 she worked in the research departments of Société Générale and Goldman Sacs, while from 2012 to 2014 she was a Research Fellow in the Economics Department of London Business School.

Evgenia's research work has focused on international finance, empirical asset pricing and political economy and has been published in the Economic Journal and in the Brooking's Paper on Economic Activity.

Her research has been recognised in with the 2017 Fondation Banque de France / ILB Young Researcher in Economics Prize.