Javier Corominas, head of economic research at Record Currency Management, examines whether beta or risk premium returns are available in currency.
The traditional argument in favour of return-seeking currency investment is that returns are the result of ‘alpha’ since the large majority of currency market participants are ‘non-profit maximisers’, or forced players in the market (eg corporations, central banks, etc). While we believe the structure of market participants does conform to this, is it possible that there might instead be ‘beta’, or risk premium, returns available in currency? At Record we are confident there are at least two distinct currency risk premia: the forward rate bias, and emerging markets, and at least two pers...
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