  We examine the pricing of a horizon specific uncertainty network risk,
extracted from option implied variances on exchange rates, in the cross-section
of currency returns. Buying currencies that are receivers and selling
currencies that are transmitters of short-term shocks exhibits a high Sharpe
ratio and yields a significant alpha when controlling for standard dollar,
carry trade, volatility, variance risk premium and momentum strategies. This
profitability stems primarily from the causal nature of shock propagation and
not from contemporaneous dynamics. Shock propagation at longer horizons is
priced less, indicating a downward-sloping term structure of uncertainty
network risk in currency markets.
