Long-Only Momentum, Currency Hedging and Transaction Costs: Implications for a Swiss Equity Investor

15 Pages Posted: 11 Oct 2013

See all articles by Vincenzo Devito

Vincenzo Devito

Hochschule Liechtenstein - Institute of Financial Services

Lars Kaiser

University of Liechtenstein

Marco J. Menichetti

Liechtenstein University

Aron Veress

University of Liechtenstein

Date Written: May 28, 2012

Abstract

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

Suggested Citation

Devito, Vincenzo and Kaiser, Lars and Menichetti, Marco Josef and Veress, Aron, Long-Only Momentum, Currency Hedging and Transaction Costs: Implications for a Swiss Equity Investor (May 28, 2012). Available at SSRN: https://ssrn.com/abstract=2338506 or http://dx.doi.org/10.2139/ssrn.2338506

Vincenzo Devito

Hochschule Liechtenstein - Institute of Financial Services ( email )

Liechtenstein

Lars Kaiser (Contact Author)

University of Liechtenstein ( email )

Fürst Franz Josef Strasse
Vaduz, 9490
Liechtenstein
+423 265 1186 (Phone)

HOME PAGE: http://www.uni.li/lars.kaiser

Marco Josef Menichetti

Liechtenstein University ( email )

Fürst-Franz-Josef-Strasse
Vaduz, FL-9490
Liechtenstein

HOME PAGE: http://www.uni.li

Aron Veress

University of Liechtenstein ( email )

Fürst-Franz-Josef-Strasse
Vaduz, 9490
Liechtenstein
+423 265 1178 (Phone)
+423 265 1112 (Fax)

HOME PAGE: http://www.uni.li/

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