Puzzling Premiums on FX Markets: Carry Trade, Momentum, and Value Alone and Strategy Diversification
We construct and compare the results of individual investment strategies: take into account trade, dynamics and costs, and assess the benefits of policy diversification. Our analysis is based on a set of 10 major currencies and an extended sample of 16 additional emerging market currencies. We implement foreign exchange strategies in FX markets against the ruble instead of the US dollar, as is customary in the foreign exchange literature. We find that the effectiveness of strategies depends on changing the ruble mode. We also provide evidence that combining strategies based on volatility offers a significant risk-adjusted yield improvement over either of the two strategies independently or with benchmarks.