Constructing an efficient portfolio based on the expected return for a portfolio (which depends on the expected return of all the asset returns in the portfolio) and the variance of the portfolio’s return (which depends on the variance of the return of all of the assets in the portfolio and the covariance of returns between [...]
To construct an efficient portfolio, the investor must be able to quantify risk and provide the necessary inputs. As will be explained in the next series of posts, there are three key inputs that are needed: future expected return (or simply expected return), variance of asset returns, and correlation (or covariance) of asset returns. There [...]
Most of the currency crises of the 1990s happened against soft currency pegs. In the wake of the Asian currency crisis, I made a stab at creating a model which focused on how exchange rates typically performed in the run to and after the break down of a pegged exchange rate regime. For good or [...]
The signal grid and the risk appetite indicator should be the two main tools of the currency strategist. There are however other aspects of the currency markets that still have to be considered. For instance, the type of exchange rate regime is an important consideration as it can have a significantly different impact on the [...]
When there is no clear, unequivocal signal from the signal grid, that is when not all four signals are pointing in the same direction, currency traders and investors can still boost their total return by using a risk appetite indicator to gauge overall market sentiment in terms of “risky” or “safe” assets, both in terms [...]