Accessing Currency Returns Through Intelligence Currency Factors

14 Pages Posted: 5 Feb 2020

See all articles by Amy Middleton

Amy Middleton

Mesirow Financial Investment Management

Date Written: December 1, 2019

Abstract

This paper presents a methodology for the construction of three “intelligent” currency beta factors based around the popular trading styles of carry, value, and trend/momentum together with a multi-style factor combining all three. The methodology is termed “intelligent” because we demonstrate how, in the case of the carry factor, applying a binary filter to determine risk environment and adjusting trade sizes in periods of risk aversion can lead to improved drawdown and enhanced performance statistics versus more naïve carry factors. In addition, for all three single-style factors we demonstrate how establishing a relationship between the resulting trade weight per currency and the magnitude of the underlying trade signal’s information coefficient can enhance performance versus other currency beta factors that apply an equal trading weight per currency regardless of the strength of signal.

Keywords: currency risk, currency factors

JEL Classification: G12, G15

Suggested Citation

Middleton, Amy, Accessing Currency Returns Through Intelligence Currency Factors (December 1, 2019). Journal of Investment Consulting, Vol. 19, no. 1, 2019, pp. 31-42, Available at SSRN: https://ssrn.com/abstract=3522680

Amy Middleton (Contact Author)

Mesirow Financial Investment Management ( email )

350 N. Clark
Chicago, IL 60610
United States

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