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Detecting Momentum in the Return Time Series of Currency Market Equally-Weighted and Min-Variance Portfolios

Ahmadi, Ali | 2019

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 52584 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Talebian, Masoud; Seif, Mostafa
  7. Abstract:
  8. Portfolio-based investment strategies in the currency market, unlike the stock market, have not been well-investigated as the scientific papers mostly focus on more popular investment strategies like carry trade, momentum, and technical analysis. Our main aim is to evaluate the performance of two well-known portfolio selection techniques, i.e. equally-weighted and minimum variance portfolios, in the currency market and to improve the performance, based on the characteristics of the return time series of each method. To improve the performance of the portfolios, we check for the presence of momentum in the return time series. Our findings show both portfolios do not yield abnormal returns when used in the original format but application of momentum strategy on the returns of the portfolios improves the performance significantly. One innovation of the present study is the introduction of average returns in momentum studies which prove to have higher explanatory power in detecting the presence of momentum. In the market portfolio (equally-weighted portfolio), the interest gain of the investor has a positive significant impact on the one-period-ahead return only in the early years while this effect is eliminated in more recent years which may be the result of the declining trend in interest rates
  9. Keywords:
  10. Portfolio ; Momentum ; Foreign Exchange (Forex) ; Optimal Investment Strategies ; Minimum Variance portfolio ; Equally-weighted Portfolio

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