Active Currency Management Part II: Is There Skill or Alpha in Currency Investing?

47 Pages Posted: 1 Aug 2011

See all articles by Momtchil Pojarliev

Momtchil Pojarliev

Fischer Francis Trees & Watts, Inc.

Richard M. Levich

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: April 11, 2011

Abstract

In this paper, we provide an overview of the main features of activecurrency management programs, highlighting the mandates and the types oftrading strategies that are often used. The traditional benchmark used to measure skill or alpha in currency investing is that the expected excess rate of return is zero. We offer an alternative standard wherethe expected rate of return is related to naive style factors based onstrategies that an investor could adopt assuming no special expertise. We review empirical evidence on the performance of both individual currency fund managers and indices of managers using the alternative benchmark. We find that a large percentage of variation in currency fund returns can be attributed to style indices. As a result, performance measures and rankings of currency funds may vary greatly depending onthe benchmark used. We review related empirical evidence on fundmanagement styles and survivorship and discuss the implications for currency management strategy and setting currency fund management fees.

Keywords: Foreign Exchange, Hedge Funds, Manager Selection

Suggested Citation

Pojarliev, Momtchil and Levich, Richard M., Active Currency Management Part II: Is There Skill or Alpha in Currency Investing? (April 11, 2011). NYU Working Paper No. FIN-11-002. Available at SSRN: https://ssrn.com/abstract=1898800

Momtchil Pojarliev

Fischer Francis Trees & Watts, Inc. ( email )

200 Park Avenue, 11th Floor
New York, NY 10166
United States

Richard M. Levich (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0422 (Phone)
212-995-4256 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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