TY - UNPB
T1 - Are carry, momentum and value still there in currencies?
AU - Hutchinson, Mark C.
AU - Kyziropoulos, Panagiotis E.
AU - O'Brien, John
AU - O'Reilly, Philip
AU - Sharma, Tripti
PY - 2022/2/2
Y1 - 2022/2/2
N2 - Predictability of currency returns, based on Carry, Momentum and Value, is widely accepted in the literature. This paper shows that out-of-sample replication of the predictors, following publication of preeminent academic studies of their risk, reveals returns have disappeared. From an investment perspective, the average out-of-sample pre-transaction cost Sharpe ratio is -0.32. While in-sample the average Fama-MacBeth predictability regression coefficients for Carry and Value are positive and statistically significant, they average zero out-of-sample. Pooled time series regressions reveal no statistical relationship between past and future excess returns in the out-of-sample period, explaining the poor performance of Momentum. Overall, subsequent to high quality information on the modest risks to these strategies becoming widely available to investors, evidence of continued high returns is weak.
AB - Predictability of currency returns, based on Carry, Momentum and Value, is widely accepted in the literature. This paper shows that out-of-sample replication of the predictors, following publication of preeminent academic studies of their risk, reveals returns have disappeared. From an investment perspective, the average out-of-sample pre-transaction cost Sharpe ratio is -0.32. While in-sample the average Fama-MacBeth predictability regression coefficients for Carry and Value are positive and statistically significant, they average zero out-of-sample. Pooled time series regressions reveal no statistical relationship between past and future excess returns in the out-of-sample period, explaining the poor performance of Momentum. Overall, subsequent to high quality information on the modest risks to these strategies becoming widely available to investors, evidence of continued high returns is weak.
U2 - 10.2139/ssrn.4024296
DO - 10.2139/ssrn.4024296
M3 - Working paper
BT - Are carry, momentum and value still there in currencies?
ER -