Do currency fundamentals matter for currency speculators? /

Do currency fundamentals matter for currency speculators? /

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Bibliographic Details
Author / Creator:Nozaki, Masahiro, author.
Imprint:Washington, D.C. : International Monetary Fund, ©2010.
Description:1 online resource (33 pages) : color illustrations
Language:English
Series:IMF working paper ; WP/10/39
IMF working paper ; WP/10/39.
Subject:
Foreign exchange futures -- Econometric models.
Foreign exchange rates -- Econometric models.
Currency question -- Econometric models.
Risk -- Econometric models.
Currency question -- Econometric models.
Foreign exchange futures -- Econometric models.
Foreign exchange rates -- Econometric models.
Risk -- Econometric models.
Format: E-Resource Book
URL for this record:http://pi.lib.uchicago.edu/1001/cat/bib/12498404
Hidden Bibliographic Details
Other authors / contributors:International Monetary Fund. Western Hemisphere Department, issuing body.
ISBN:1283563150
9781283563154
9781451962864
145196286X
Notes:Includes bibliographical references (pages 32-33).
Print version record.
Summary:The answer seems affirmative. We compare currency carry trades with an investment strategy based on currency fundamentals: taking a long (short) position in undervalued (overvalued) currencies. Carry trades have high risk-adjusted returns, but are subject to "crash risk." In contrast, the fundamental strategy has lower risk-adjusted returns, but is less prone to crash risk, because the realization of crash risk coincides with corrections towards fundamentals. In particular, the fundamental strategy outperformed carry trades during the recent global financial crisis. Building on these results, we present early warning indicators for potential turbulence in the currency market.
Other form:Print version: Nozaki, Masahiro. Do currency fundamentals matter for currency speculators? [Washington, D.C.] : International Monetary Fund, ©2010
Table of Contents:
  • I. Introduction; II. Setup; A. Currency Speculation Strategies; B. Currency Fundamental Values; Tables; 1. Tests for Unit Root and Cointegration; 2. Estimates of the Cointegration Vector; Figures; 1. REER and Bilateral Exchange Rate vis-à-vis U.S. Dollar, 1985-2008; III. Results; A. The Sharpe Ratio and Skewness; 3. Performance of Currency Speculation Strategies; 2. Sharpe Ratio and Skewness for Currency Speculation Strategies; 3. Sharpe Ratio and Skewness: Equally Weighted Portfolio; B. The Source of Negative Skewness and Improvements under the Fundamental Strategy.
  • 4. Performance of Currency Speculation Strategies: Subsamples5A. Sources of Negative Skewness for the Carry Trade Strategy; 5B. Realized Returns of the Equally Weighted Portfolio during Dismal Months of CT; C. The Optimal Investment Ratio; D. Currency Speculation and the Global Financial Crisis; 6. Optimal Investment and Utility Levels; 7. Performance of Currency Speculation Strategies during the Recent Global Crisis; IV. Robustness Issues and Extensions; A. No Hindsight Case; 4. Gap Index, Divergence Index, and VIX, 2000-2008; 5. Panel Regression Coefficients with Moving Sample Periods.
  • 6. Sharpe Ratio and Skewness for Currency Speculation Strategies (No Hindsight Case)8A. Performance of Currency Speculation Strategies: No Hindsight Case; 8B. Sources of Negative Skewness for the Carry Trade Strategy (No Hindsight Case); 8C. Optimal Investment and Utility Levels; B. Gains from Incorporating Determinants of Currency Fundamentals; C. Transaction Costs; 9. Performance of Currency Speculation Strategies: PPP and HP Filter Cases; 10. Bid-ask Spreads; 7. Sharpe Ratio and Skewness for Currency Speculation Strategies (with Transaction Costs); D. Correlation with Risk Factors.
  • 11. Correlation with Risk FactorsE. Commodity Currencies; V. Conclusion; 12. Performance of Currency Speculation Strategies: Commodity Currencies; Appendix; References.

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