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Author Reus, L.; Mulvey, J.M.
Title Dynamic allocations for currency futures under switching regimes signals Type
Year 2016 Publication European Journal Of Operational Research Abbreviated Journal Eur. J. Oper. Res.
Volume 253 Issue 1 Pages 85-93
Keywords Investment analysis; Currency futures; Carry trade; Regime identification; Mean-semivariance portfolio optimization
Abstract Over the last decades, speculative investors in the FX market have profited in the well known currency carry trade strategy (CT). However, during currencies or global financial crashes, CT produces substantial losses. In this work we present a methodology that enhances CT performance significantly. For our final strategy, constructed backtests show that the mean-semivolatility ratio can be more than doubled with respect to benchmark CT. To do the latter, we first identify and classify CT returns according to their behavior in different regimes, using a Hidden Markov Model (HMM). The model helps to determine when to open and close positions, depending whether the regime is favorable to CT or not. Finally we employ a mean-semivariance allocation model to improve allocations when positions are opened. (C) 2016 Elsevier B.V. All rights reserved.
Address [Reus, Lorenzo] Univ Adolfo Ibanez, Dept Sci & Engn, Diagonal Las Torres 2640, Santiago, Chile, Email: lorenzo.reus@uai.cl;
Corporate Author Thesis
Publisher Elsevier Science Bv Place of Publication (up) Editor
Language English Summary Language Original Title
Series Editor Series Title Abbreviated Series Title
Series Volume Series Issue Edition
ISSN 0377-2217 ISBN Medium
Area Expedition Conference
Notes WOS:000374613900007 Approved
Call Number UAI @ eduardo.moreno @ Serial 612
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