Is There Skill or Alpha in Currency Investing?

47 Pages Posted: 26 Jun 2013

See all articles by Richard M. Levich

Richard M. Levich

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

Momtchil Pojarliev

Fischer Francis Trees & Watts, Inc.

Multiple version iconThere are 2 versions of this paper

Date Written: June 2011

Abstract

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 naive 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.

Suggested Citation

Levich, Richard M. and Pojarliev, Momtchil, Is There Skill or Alpha in Currency Investing? (June 2011). NYU Working Paper No. 2451/29936. Available at SSRN: https://ssrn.com/abstract=2284647

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

Momtchil Pojarliev

Fischer Francis Trees & Watts, Inc. ( email )

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

Register to save articles to
your library

Register

Paper statistics

Downloads
65
Abstract Views
419
rank
86,201
PlumX Metrics