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SUMMARY:An anatomy of currency strategies: The role of emerging markets
DTSTART:20240503T114500
DTEND:20240503T130000
DTSTAMP:20260916T224300Z
UID:d94d1782963a6c05972efe09babe9ace5eeadfeb3909fb78c669442a
CATEGORIES:Conferences - Seminars
DESCRIPTION:Mikhail Chernov - UCLA\n(with Magnus Dahlquist and Lars Lochst
 oer)\n\nHow do emerging economies contribute to the currency market’s co
 nditional riskreturn trade-off? We construct an out-of-sample mean-varianc
 e efficient portfolio\nfrom the G10 and floating-regime emerging-market cu
 rrencies that prices trading strategies based on all available currencies 
 and characterizes risk premiums at each date in the sample. The risk premi
 um dynamics are consistent with both the substantial decline in average re
 turns to many of the G10 trading strategies over the sample\, and the cont
 inued high carry returns of the emerging trading strategies. Further\, the
  approach provides a conditional return decomposition into priced and unpr
 iced components. We show that trading strategies\, including dollar and ca
 rry\, are strongly exposed to currency factors that increase return varian
 ce\, but that do not command a risk premium. This unpriced risk must be he
 dged out from these strategies if they are to properly characterize risk a
 nd return in the currency market. For instance\, the carry strategy has a 
 Sharpe ratio of 0.71 that increases to 1.29 after real-time hedging of unp
 riced risks. We relate these unpriced risks to currency comovements arisin
 g from geographically-based factors.\n 
LOCATION:UniL Campus\, Room Extra 126
STATUS:CONFIRMED
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