| Summary: | 碩士 === 國立政治大學 === 金融學系 === 106 === This paper is research the relationship between factors and liquidity risks in the foreign exchange market. First, we use 37 currencies and factor indexes to build up four portfolios by High minus Low method in the sample period from 1985/02 to 2017/08.Then we find out each factor has significant excess return and the relationship between Momentum and Value factors is obviously negative.
Second, we explore if five liquidity risks can explain the excess returns in Carry trade, Momentum strategy and Value strategy factor. Otherwise, if the factors above can explain the negative relationship between Momentum factor and Value factor. So, we use the simple regression to testify those relations and find out that funding liquidity risk factors are more significant than market liquidity risk factors in the regression. When the funding liquidity risk falls, excess returns of Carry and Momentum factors will rise and excess return of Value factor will rise. In this study opinion, the negative relationship between Momentum and Value factors may be caused by their opposite relationship with funding liquidity risk.
In the end, we use Fama-Macbeth two-step regression to testify the asset pricing ability. We find out that the asset pricing ability of funding liquidity risk factor is better than market liquidity risk factor regardless in every Fama-Macbeth two-step regression.
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