Fund Flows Predict Emerging Markets FX Returns
Log in to collectAcademic paper
Emerging Market Bond Flows and Exchange Rate Returns
Hong Kong Institute for Monetary and Financial Research
- ?(HKIMR)
Strategy in a nutshell
The strategy builds a dollar-neutral long-short portfolio across 34 currencies, going long on countries with large bond inflows and short on those with strong outflows, rebalanced weekly.
Economic rationale
Currency risk reflects future financial tightening. Countries with strong inflows today often face tighter conditions later, so investors demand compensation, making bond-flow signals valuable for predicting exchange rate movements.
Backtest performance
Annualised return8.89%
Volatility8.22%
Sharpe ratio1.08
Maximum drawdown-11.5%