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Information × Registration Number 2122U003018, Article popup.category Препринт Title popup.author Kantsir Solomiia popup.publication 01-01-2022 popup.source_user Український католицький університет popup.source https://hdl.handle.net/20.500.14570/3908 popup.publisher Description Weinvestigatetherelationshipbetweenriskandreturnsintheexchangeratemarket and propose a new statistical model for predicting currency returns using the Instrumented Principal Component Analysis (IPCA) (Kelly, Pruitt, and Su, 2019). Weshowthatthemodelwithtime-varyingloadingsandlatentfactorsoutperforms the existingfactor-basedstrategiesin-sampleandout-of-sample.Specifically,the four-factorIPCAmodelexplainsupto64%ofcurrencyreturnsvariation,whilethe model withobservablefactorsshowstheperformanceof57%.Wehavefoundthat the IPCAfactorsthatexplainthecross-sectionofcurrencyreturnsareglobalvolatil- ity,carrytrade,dollar,andmomentum.Theresultsaretestedin-sampleandout- sample and hold for individual currencies and managed portfolios. popup.nrat_date 2025-05-09 Close