Investor attention and FX market volatility

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We study the relationship between investors’ active attention, measured by a Google search volume index (SVI), and the dynamics of currency prices. Investor attention is correlated with the trading activities of large FX market participants. Investor attention comoves with contemporaneous FX market volatility and predicts subsequent FX market volatility, after controlling for macroeconomic fundamentals. In addition, investor attention is related to the currency risk premium. Our results suggest that investor attention is a priced source of risk in FX markets.
Original languageEnglish
Pages (from-to)79-96
JournalJournal of International Financial Markets, Institutions and Money
Volume38
DOIs
Publication statusPublished - 19 May 2015

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