NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Momtchil Pojarliev

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Working Papers

January 2010Detecting Crowded Trades in Currency Funds
with Richard M. Levich: w15698
The financial crisis of 2008 highlights the importance of detecting crowded trades due to the risks they pose to the stability of the financial system and to the global economy. However, there is a perception that crowded trades are difficult to identify. To date, no single measure to capture the crowdedness of a trade or a trading style has developed. We propose a methodology to measure crowded trades and apply it to professional currency managers. Our results suggest that carry became a crowded trading strategy towards the end of Q1 2008, shortly before a massive liquidation of carry trades. The timing suggests a possible adverse relationship between our measure of style crowdedness and the future performance of the trading style. Crowdedness in the trend following and value strategies...
September 2008Trades of the Living Dead: Style Differences, Style Persistence and Performance of Currency Fund Managers
with Richard M. Levich: w14355
We make use of a new database on daily currency fund manager returns over a three-year period, 2005-08. This higher frequency data allows us to estimate both alpha measures of performance and beta style factors on a yearly basis, which in turn allows us to test for persistence. We find no evidence to support alpha persistence; a manager's alpha in one year is not significantly related to his alpha in the prior year. On the other hand, there is substantial evidence for style persistence; funds that rely on carry, trend or value trading or with a long/short bias toward currency volatility are likely to maintain that style in the following year. In addition, we are able to examine the performance of managers that survive through the entire sample period, versus those that drop out. We find si...
December 2007Do Professional Currency Managers Beat the Benchmark?
with Richard M. Levich: w13714
We investigate an index of returns on professionally managed currency funds and a subset of returns from 34 individual currency fund managers. Over the period 1990-2006, excess returns earned by currency fund managers have averaged 25 basis points per month. We examine the relationship of these returns to four factors representing returns based on carry trading, trend-following, value trading and currency volatility. These four factors explain a substantial portion of the variability in index returns in the entire period and in sub-periods. We perform similar regressions for the 34 individual funds, and find many funds where returns are significantly related to these four factors. Our approach impacts the definition of alpha returns from currency speculation, modifying it from the excess r...

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