Advanced Search
MyIDEAS: Login

Application of investment models in foreign exchange reserve management in Eesti Pank

Contents:

Author Info

  • Andres Vesilind

    ()

  • Toivo Kuus

    ()

Registered author(s):

    Abstract

    This paper describes active investment strategy used in the central bank of Estonia and introduces model-based investment decisions as a component of that strategy. The first chapter of the paper describes the evolution of the investment process in Eesti Pank and outlines the framework of reserve management. It describes the role of several forms and styles of investing: active and passive management, qualitative and quantitative management, emphasizing the role of diversification for achieving better performance. The chapter concludes with the description of the investment strategy used in the central bank of Estonia. The second chapter describes model-based investing as part of active management strategy. Three investment models are estimated and tested: a model for directional positions in the US, German and Japanese 10-year government bond futures, a model for cross-currency positions in ten major currencies, and a model for cross-country yield spread trades in eight major government bond markets. The models extend the framework developed by Ilmanen and Sayood (Ilmanen et al. 2002). After the model estimation the models are combined with a trend-following model and the whole set of diversified models is tested. Finally, correlation study of these results with the results of external asset managers and in-bank discretionary analysis is performed. The paper ends with a discussion on the possibilities for further development of the quantitative investment program and conclusions.

    Download Info

    If 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.
    File URL: http://www.eestipank.info/pub/en/dokumendid/publikatsioonid/seeriad/uuringud/_2005/_6_2005/_wp_605.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Bank of Estonia in its series Bank of Estonia Working Papers with number 2005-6.

    as in new window
    Length:
    Date of creation: 10 Oct 2005
    Date of revision: 10 Oct 2005
    Publication status: published
    Handle: RePEc:eea:boewps:wp2005-06

    Contact details of provider:
    Postal: Estonia bld. 13, 15095 Tallinn, ESTONIA
    Phone: +3726680719
    Fax: +3726680900
    Email:
    Web page: http://www.bankofestonia.info
    More information through EDIRC

    Order Information:
    Postal: Estonia bld. 13, 15095 Tallinn, ESTONIA
    Email:

    Related research

    Keywords: trading rules; active management; central bank reserves;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    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.:
    as in new window
    1. Francis X. Diebold & Canlin Li, 2004. "Forecasting the Term Structure of Government Bond Yields," CFS Working Paper Series 2004/09, Center for Financial Studies.
    2. Frankel, Jeffrey A. & Rose, Andrew K., 1995. "Empirical research on nominal exchange rates," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 33, pages 1689-1729 Elsevier.
    3. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    4. Greer, Mark, 2003. "Directional accuracy tests of long-term interest rate forecasts," International Journal of Forecasting, Elsevier, vol. 19(2), pages 291-298.
    5. Fong, Wai Mun & Yong, Lawrence H. M., 2005. "Chasing trends: recursive moving average trading rules and internet stocks," Journal of Empirical Finance, Elsevier, vol. 12(1), pages 43-76, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eea:boewps:wp2005-06

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peeter Luikmel).

    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.