Currency Management Styles: Ten Years On

James Binny

In 2005, previous research (Binny, 2005) attempted to explain the simple inefficiencies that enable currency managers to make profits for their clients, and to illustrate the techniques using “naïve simulations” of simple currency investment strategies. These simple naïve simulations – value, trend-following, yield and volatility capture – continued to be updated and published on Bloomberg (as ABN AMRO Naïve Currency Management indices), although, as the author went to work at a hedge fund, the indices were discontinued. However, many banks have come to adopt similar indices to illustrate currency returns and, frequently, as the basis for derivatives.

Many of these other subsequent indices are more sophisticated and “optimised” than the original naïve versions. The optimisation may well have been appropriate where they were being sold as investment products rather than just as illustrations/benchmarks (which was the intention with the original naïve versions). However, this chapter will seek to update those original simulations without further optimisation, representing truly “out-of-sample” empirical results. This approach maintains the original naïve concept and avoids the