Empirical Test of the Efficiency of Currency Investments

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Authors	SVOBODA Martin REUSE Svend
Year of publication	2011
Type	Article in Periodical
Magazine / Source	PRAGUE ECONOMIC PAPERS
MU Faculty or unit	Faculty of Economics and Administration
Citation
web	http://pep.vse.cz/artkey/pep-201102-0001_empirical-test-of-the-efficiency-of-currency-investments.php
Doi	http://dx.doi.org/10.18267/j.pep.391
Field	Economy
Keywords	portfolio theory; financial crisis; historical simulation; currency investment; leveraging by currencies
Description	Portfolio theory and the basic ideas of Markowitz can be applied to currency investments as well as to classical asset classes as shares or bonds. The question whether currency investments can be treated as effi cient asset classes is not fi nally answered in theory and practice. This article applies a modifi ed historical simulation approach onto shares, bonds and currencies. The questions according to the effi ciency of currency investments are answered empirically from a Euro-investor’s point of view. The empirical analysis leads to the result that currency investments are not effi cient in general. Some specifi c cases exist. The used data lead to the result that the Czech Koruna seems to be an effi cient asset class and leveraging a Euro portfolio by other currencies is useful as well. But it has to be doubted if these effects will remain in the future.