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Carry Trades and the Performance of Currency Hedge Funds

Listed author(s):
  • Federico Nucera

    (Prometeia)

  • Giorgio Valente

    (University of Essex and Hong Kong Institute for Monetary Research)

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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Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 032013.

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Length: 35 pages
Date of creation: Mar 2013
Handle: RePEc:hkm:wpaper:032013
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