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Discussion Paper Details

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Title: U.S. Populist Rhetoric and Currency Returns

Author(s): Ilias Filippou, Arie Gozluklu, My Nguyen and Mark P Taylor

Publication Date: July 2020

Keyword(s): Foreign exchange market, populism and textual analysis

Programme Area(s): International Macroeconomics and Finance

Abstract: We develop a novel measure of U.S. populist rhetoric. Aggregate Populist Rhetoric (APR) Index spikes around populist events. We decompose the APR Index into sub-indices. We show that APR Index and International Relations sub-index are negatively priced in the cross-section of currency excess returns. Currencies that perform well (badly) when U.S. populist rhetoric is high yield low (high) expected excess returns. Investors require high risk premium for holding currencies which underperform in times of rising U.S. populist rhetoric, especially in the post-crisis period. A long-short strategy that buys (sells) currencies with high (low) exposure to U.S. populism offers strong diversification benefits.

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Bibliographic Reference

Filippou, I, Gozluklu, A, Nguyen, M and Taylor, M. 2020. 'U.S. Populist Rhetoric and Currency Returns'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15054