Prague Economic Papers 2011, 20(2):99-119 | DOI: 10.18267/j.pep.391

Empirical Test of the Efficiency of Currency Investments

Svend Reuse1, Martin Svoboda2
1 FOM University of Applied Science; Masaryk University Brno, CR; Sparkasse Mülheim an der Ruhr, Luxemburger Allee 121, DE - 45481, Mülheim (Svend.Reuse@gmx.de).
2 Masaryk University Brno, Lipova 41a, CZ - 602 00, Brno (svoboda@econ.muni.cz).

The 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 efficient asset classes is not finally answered in theory and practice. This article applies a modified historical simulation approach to shares, bonds and currencies. The questions according to the efficiency 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 efficient in general. Some specific cases exist. The used data lead to the result that the Czech koruna seems to be an efficient 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.

Keywords: portfolio theory, financial crisis, historical simulation, currency investment, leveraging by currencies
JEL classification: F31, G11, G14, G15

Published: January 1, 2011  Show citation

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Reuse, S., & Svoboda, M. (2011). Empirical Test of the Efficiency of Currency Investments. Prague Economic Papers, 20(2), 99-119. doi: 10.18267/j.pep.391
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