Optimal Factor Strategy in FX Markets
Event details
| Date | 04.04.2017 |
| Hour | 12:15 › 13:15 |
| Speaker | Thomas MAURER (Washington University in St. Louis) |
| Location | |
| Category | Conferences - Seminars |
We construct a dynamic currency trading strategy that earns a remarkable out-of-sample Sharpe ratio of 1.04 before and 0.78 after transaction costs. It substantially outperforms other popular carry trade strategies in terms of Sharpe ratio, skewness, kurtosis, maximum drawdown, expected recovery time, and percentage of positive returns. Popular factor pricing models in international finance do not explain the superior performance. Our strategy predicts future (1- to 24-month ahead) returns and changes in global FX market volatility. A pricing model using our trading strategy as a single factor outperforms and subsumes the popular “Dollar”-“Carry” two factor pricing model.
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