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Carry trades and the performance of currency hedge funds

  • Nucera, Federico
  • Valente, Giorgio

We investigate the performance and risk of currency hedge funds using a large and unique consolidated currency hedge fund dataset. We find that a substantial number of hedge funds generate returns that exceed foreign exchange risk premia obtained through carry trades. The best alpha-generating funds exhibit a performance that persists over a one-year horizon. This performance persistence is mostly due to compensation for currency risk-taking as there is no strong evidence of remuneration for active management. The results are robust to biases affecting hedge fund returns, alternative carry trade benchmarks and different methodologies used to correct for sample variability.

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File URL: http://www.sciencedirect.com/science/article/pii/S0261560612002239
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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 33 (2013)
Issue (Month): C ()
Pages: 407-425

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Handle: RePEc:eee:jimfin:v:33:y:2013:i:c:p:407-425
DOI: 10.1016/j.jimonfin.2012.12.001
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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