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Beta'em Up: What is Market Beta in FX?

15 Pages Posted: 23 May 2014  

Saeed Amen

Cuemacro; Thalesians Ltd

Date Written: August 30, 2013

Abstract

In asset classes such as equities, the market beta is fairly clear. However, this question is more difficult to answer within FX, where there is no obvious beta. To help answer the question, we discuss generic FX styles that can be used as a proxy for the returns of a typical FX investor. We also look at the properties of a portfolio of these generic styles. This FX styles portfolio has an information ratio of 0.64 since 1976. Unlike its individual components, the FX styles portfolio returns are relatively stable with respect to underlying regimes in S&P500. Later we replicate FX fund returns using a combination of these generic FX styles. We show that a combination of FX trend and carry, can be used as a beta for the FX market. Later, we examine the relationship between bank indices and these generic FX styles. We find that there is a significant correlation in most instances, with some exceptions.

Keywords: foreign exchange, momentum, trend following, market beta, carry, PPP

JEL Classification: F31, E32

Suggested Citation

Amen, Saeed, Beta'em Up: What is Market Beta in FX? (August 30, 2013). Available at SSRN: https://ssrn.com/abstract=2439854 or http://dx.doi.org/10.2139/ssrn.2439854

Saeed Amen (Contact Author)

Cuemacro ( email )

London
United Kingdom

Thalesians Ltd ( email )

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