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Currency Management with Style

Last Updated on 10 February, 2024 by Rejaul Karim

The research article “Currency Management with Style” by Harald Lohre and Martin Kolrep delves into a nuanced approach to currency management, challenging the conventional all-or-nothing stance often adopted towards currency hedging.

Instead of advocating for complete or zero hedging of foreign exchange positions, the study presents a more refined strategy—systematically harnessing the advantages of the FX style factors carry, value, and momentum.

The research underscores the potential of these factors to broaden the scope of traditional asset allocation, whether for FX factor-based tail-hedging or return-seeking strategies.

By examining how these factors can be leveraged, the article offers an innovative perspective that transcends the binary approach traditionally associated with currency hedging, opening the door to a more sophisticated and multifaceted understanding of currency management.

Abstract Of Paper

Currency hedging is often approached with an all-or-nothing mentality: either full hedging of all foreign exchange (FX) positions or no hedging at all. As a more nuanced alternative, we suggest systematically harvesting the benefits of the FX style factors carry, value and momentum. In particular, we demonstrate how these factors can expand the opportunity set of traditional asset allocation when pursuing either FX factor-based tail-hedging or return-seeking strategies.

Original paper – Download PDF

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Author

Harald Lohre
Robeco Quantitative Investments; Lancaster University Management School

Martin Kolrep
Invesco

Conclusion

In conclusion, the research article “Currency Management with Style” by Harald Lohre and Martin Kolrep advocates a nuanced and innovative approach to currency management that diverges from the traditional all-or-nothing outlook on hedging foreign exchange positions.

Instead of an indiscriminate approach, the study proposes the strategic utilization of FX style factors—carry, value, and momentum—expanding the potential of traditional asset allocation for both tail-hedging and return-seeking strategies.

By embracing the multifaceted benefits of these factors, the research offers a fresh perspective, enhancing the sophistication of currency management practices beyond the binary approach typically prevalent in the field.

This dynamic approach has the potential to enrich currency management strategies and enable investors to navigate the complexities of currency markets with greater insight and efficacy.

Related Reading:

Currency Factors

Global Equity Correlation in International Markets

FAQ

Q1: What is the main focus of the research article “Currency Management with Style” by Harald Lohre and Martin Kolrep?

A1: The main focus of the research article is to present a nuanced approach to currency management, challenging the conventional all-or-nothing stance typically adopted towards currency hedging. Instead of advocating for complete or zero hedging, the study suggests systematically harnessing the benefits of FX style factors—carry, value, and momentum.

Q2: How does the article challenge the traditional approach to currency hedging?

A2: The article challenges the traditional approach to currency hedging, which often involves an all-or-nothing mentality—either full hedging of all foreign exchange (FX) positions or no hedging at all. Instead, the study proposes a more refined strategy that involves systematically leveraging the advantages of FX style factors, introducing a nuanced perspective to currency management.

Q3: What are the FX style factors mentioned in the article, and how are they utilized in the proposed strategy?

A3: The FX style factors mentioned in the article are carry, value, and momentum. These factors are systematically harnessed in the proposed strategy to expand the opportunity set of traditional asset allocation. The article explores how these factors can be leveraged for both FX factor-based tail-hedging and return-seeking strategies, offering a more sophisticated and multifaceted approach to currency management.

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