Active Currency Investing and Performance Benchmarks
AbstractThere are no established benchmarks for evaluating currency investment manager performance. Some analysts have suggested that known investing styles like momentum, purchasing power parity, and carry serve as benchmarks. Challenges for this approach include: there is no market portfolio; there are many alternative generic factor constructions; different constructions of the same factor may have low correlations; the 3 factors may not provide diversification; and there is no “buy and hold” in the FX market. An evaluation of professional currency managers’ returns indicates that they are often generated independently from the generic style factors. Skill in timing is what investors should pay for and some managers demonstrate superior skill in timing the factors. Managers are also skilled at minimizing drawdowns relative to the generic factors. The use of generic style factors may be a worst case scenario instead of returns to which an FX investor may aspire.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3052.
Date of creation: 2010
Date of revision:
currency investing; performance benchmarks; carry; momentum; purchasing power parity;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Menkhoff, Lukas & Taylor, Mark P., 2006.
"The Obstinate Passion of Foreign Exchange Professionals : Technical Analysis,"
The Warwick Economics Research Paper Series (TWERPS)
769, University of Warwick, Department of Economics.
- Lukas Menkhoff & Mark P. Taylor, 2007. "The Obstinate Passion of Foreign Exchange Professionals: Technical Analysis," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 936-972, December.
- Menkhoff, Lukas & Taylor, Mark P., 2006. "The Obstinate Passion of Foreign Exchange Professionals: Technical Analysis," Diskussionspapiere der Wirtschaftswissenschaftlichen FakultÃ¤t der Leibniz UniversitÃ¤t Hannover dp-352, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
- Michael Melvin & Mark P. Taylor, 2009.
"The Crisis in the Foreign Exchange Market,"
CESifo Working Paper Series
2707, CESifo Group Munich.
- Momtchil Pojarliev & Richard M. Levich, 2007. "Do Professional Currency Managers Beat the Benchmark?," NBER Working Papers 13714, National Bureau of Economic Research, Inc.
- Menkhoff, Lukas & Sarno, Lucio & Schmeling, Maik & Schrimpf, Andreas, 2012.
"Currency Momentum Strategies,"
CEPR Discussion Papers
8747, C.E.P.R. Discussion Papers.
- Lukas Menkhoff & Lucio Sarno & Maik Schmeling & Andreas Schrimpf, 2011. "Currency Momentum Strategies," BIS Working Papers 366, Bank for International Settlements.
- Lukas Menkhoff & Lucio Sarno & Maik Schmeling & Andreas Schrimpf, 2012. "Currency Momentum Strategies," Working Paper Series 09_12, The Rimini Centre for Economic Analysis.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.