Long-Only Momentum, Currency Hedging and Transaction Costs: Implications for a Swiss Equity Investor
15 Pages Posted: 11 Oct 2013
Date Written: May 28, 2012
This study investigates the efficiency of European capital markets by examining the profitability of four long-only momentum strategies, after transaction costs of 0.5%, from the perspective of a Swiss equity investor. The investment universe considered in this study includes securities denominated in CHF, EUR, and GBP. In a first step, momentum strategies are evaluated over a period of fifteen years without hedging exchange rate risk of EUR and GBP. In a second step, the performance of full- and optimal currency hedging strategies is assessed. Results show that momentum strategies, after having considered transaction costs, do not significantly outperform a simple buy-and-hold strategy in risk-adjusted terms. Nevertheless, currency hedging strategies do significantly reduce the return volatility of portfolios.
Keywords: Momentum; Currency; Hedging; Transaction Costs; Switzerland
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