Our currency, your attention: Contagion spillovers of investor attention on currency returns

摘要

This study investigates financial contagion among currency markets through the novel channel of investor attention measured by Google search volume index (SW). These contagion spillovers, generated rapidly, are mainly positive and relatively short-lived. The effects are more remarkable for lagged currency attention from developed markets on emerging currency returns. Besides, the effects are barely affected by additionally controlling for liquidity, which means that investor attention plays an indispensable role in financial contagion. Additionally, past currency appreciation negatively impacts contagion spillovers of attention on present currency returns. Hence, increased attention diminishes the return predictability and therefore alleviates market inefficiency. Furthermore, we corroborate that investor attention provides a statistically significant out-of-sample forecast on currency returns, which is congruent with the previous in-sample results. Overall, our findings support the attention reallocation channel as an important contagion mechanism among currency markets and show that attention works as a predictive variable.