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Active currency management of international bond portfolios

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  • Gueorgui Konstantinov

Abstract

This paper focuses on the estimation and implementation of a holistic quantitative yield-curve-based approach to managing multi-currency bond portfolios. The primary task of the presented model is to manage the portfolio risk and return by exploiting inefficiencies in the emergent complexity of both currency and bond markets to generate alpha. Instead of using proxy variables, the expected return and risk parameters are estimated directly using their underlying simplicity and connectivity, period by period at specific moments in time, thus generating time diversification with aggressive risk taking and positioning. As a result, the strategies described in this paper can be classified as both alpha hunters and generators. Copyright Swiss Society for Financial Market Research 2014

Suggested Citation

  • Gueorgui Konstantinov, 2014. "Active currency management of international bond portfolios," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 28(1), pages 63-94, February.
    • Handle: RePEc:kap:fmktpm:v:28:y:2014:i:1:p:63-94
    DOI: 10.1007/s11408-013-0223-8
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    References listed on IDEAS

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    1. Eichenbaum, Martin & Rebelo, Sérgio & Burnside, Craig & Kleshchelski, Isaac, 2006. "The Returns to Currency Speculation," CEPR Discussion Papers 5883, C.E.P.R. Discussion Papers.
    2. Stephen A. Ross, 2013. "The Arbitrage Theory of Capital Asset Pricing," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 1, pages 11-30, World Scientific Publishing Co. Pte. Ltd..
    3. Daniel Edelman & William Fung & David Hsieh & Narayan Naik, 2012. "Funds of hedge funds: performance, risk and capital formation 2005 to 2010," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 26(1), pages 87-108, March.
    4. Momtchil Pojarliev & Richard M. Levich, 2007. "Do Professional Currency Managers Beat the Benchmark?," NBER Working Papers 13714, National Bureau of Economic Research, Inc.
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    Keywords

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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G1 - Financial Economics - - General Financial Markets
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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