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Emotions Matter - Sentiment and Momentum in FX


Uhl, Matthias (2017). Emotions Matter - Sentiment and Momentum in FX. Journal of Behavioral Finance, 18(3):249-257.

Abstract

We introduce news sentiment as a variable that can explain and predict subsequent changes in the USD/EUR exchange rate, and therefore close a gap in the foreign exchange literature. By applying the concept of frequency ltering from the domain of electrical engineering, we show an innovative way of ltering for noise in both news sentiment, but also in price momentum. We nd that news sentiment is not correlated to price momentum, and that trading strategies based on news sentiment achieve around twice as high information ratios (up to 0.9) than with trading strategies based on price momentum.

Abstract

We introduce news sentiment as a variable that can explain and predict subsequent changes in the USD/EUR exchange rate, and therefore close a gap in the foreign exchange literature. By applying the concept of frequency ltering from the domain of electrical engineering, we show an innovative way of ltering for noise in both news sentiment, but also in price momentum. We nd that news sentiment is not correlated to price momentum, and that trading strategies based on news sentiment achieve around twice as high information ratios (up to 0.9) than with trading strategies based on price momentum.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:June 2017
Deposited On:26 Mar 2018 20:24
Last Modified:30 Jun 2018 07:52
Publisher:Taylor & Francis
ISSN:1542-7560
OA Status:Closed
Publisher DOI:https://doi.org/10.1080/15427560.2017.1332061
Other Identification Number:merlin-id:13900

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Embargo till: 2018-12-13