Is There Skill or Alpha in Currency Investing?

47 Pages Posted: 19 Sep 2011 Last revised: 21 Sep 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)

Date Written: April 11, 2011


In this paper, we provide an overview of the main features of active currency management programs, highlighting the mandates and the types of trading 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 where the expected rate of return is related to naïve style factors based on strategies 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 on the benchmark used. We review related empirical evidence on fund management styles and survivorship and discuss the implications for currency management strategy and setting currency fund management fees.

Keywords: Foreign Exchange, Hedge Funds, Manager Selection

JEL Classification: F31

Suggested Citation

Pojarliev, Momtchil and Levich, Richard M., Is There Skill or Alpha in Currency Investing? (April 11, 2011). Midwest Finance Association 2012 Annual Meetings Paper. Available at SSRN: or

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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