Institutional Investment Management

Currency Management: The Case for Fundamental Investing

In this paper, we challenge consensus wisdom that fundamental value is a less reliable concept for currencies than it is for markets. Our results show that exchange rates tend to revert to value over slightly shorter time horizons than prices in markets and are equally likely—with high statistical confidence—to revert. This argues for an at least equal reliance on the use of value/price investment signals in dynamic currency management as for asset-class management, which is likely in opposition to what may be judged to be appropriate by the consensus wisdom of global investors. 

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