Abstract: Standard carry trades, which consist of purchasing high- and selling low-yield currencies, provide an economic diversification effect. However, the diversification effect is not robust, and is not borne out by much statistical evidence. We introduce optimized carry trades, which incorporate risk components such as currency volatility or currency skewness in the selection process. These optimized carry trades provide a robust economic diversification effect observed by a larger Sharpe ratio, a reduced portfolio volatility, a smaller drawdown, or a reduced tail risk with respect to a benchmark portfolio. Moreover, a significant improvement of the mean-efficient frontier is observable, with the result that minimum-variance and tangency portfolio are enhanced. The empirical results reveal that optimized carry trades have a larger diversification effect than standard carry trades and their modifications.

Abstract: The 2007 Global Financial Crisis revealed material weakness in the boundary between trading and banking books. Consequently, this boundary was revised by the Basel Committee, leading to an amendment to the Capital Requirement Regulation. Smart contracts can be applied diversely, including to assign positions to a trading or banking book. However, legal constraints could limit the smart contract utilization for this purpose.

Assuming a European standalone institution, two main legal constraints can be identified in the application of smart contracts. First, legal definitions and requirements are mostly qualitative in nature. This means that a smart contract cannot perform a certain justification, as it requires a quantitative interpretation. Second, certain governance processes and risk management reviews are complex and highly economic, demanding a high cognitive ability. A smart contract is therefore limited in its ability to tackle the required exercises, being able to only support these processes and reviews.

Abstract: We propose an optimal currency hedging strategy for global equity investors using currency value, carry, and momentum to proxy for expected currency returns. A benchmark risk constraint ensures the overlay closely mimics a fully hedged portfolio. We compare this with naïve and alternative hedges in a demanding out-of-sample test, with transaction and rebalancing costs and margin requirements. Other hedging methods generally reduce risk but at a cost. Some tend to short currencies with high returns and all incur substantial costs with frictions, mostly margin requirements and equity rebalancing costs. The proposed strategy uses predictable returns to reduce this cost. It produces a statistically significant 17% gain in Sharpe ratio and an annualized Jensen-α of 0.93% versus a fully hedged benchmark. Notably, most of the implementation costs of the strategy would be incurred by the benchmark anyway. This reduces its marginal cost and highlights a specific synergy of integrating hedging with speculation.

Abstract: The global language of scholarly research is English and so the obstacle of getting noticed is montainous when the article is not written in the English language. Indeed, despite rapid advances in technology, the “tyranny of language” creates a segmentation inhibiting scholarly research and innovation generally. Mass translation of non-English language articles is neither feasible nor desirable. Our paper proposes a strategy for remedying this segmentation – such that, the work of non-English language scholars become more discoverable. The core piece of this strategy is a “reverse-engineering” [RE] application of Faff’s (2015, 2017a) “pitching research template. More specifically, we provide access to translated versions of the “cued” template across thirty-three different languages, and most notably for this journal, including the Romanian and French languages. Further, we showcase an illustrative dual language French-English example.

Abstract: Drawdown periods of standard carry trades are primarily the result of losses in classic carry trade currencies. These periods coincide with an increased financial stress, such as the recent financial crisis. The introduced optimized carry trades employ a dynamic weighting scheme for currencies, which incorporates general risk components. Optimized carry trades are therefore less exposed to losses under financial stress, and provide an enhanced risk-return profile over the entire and second half of the sample period and during periods of volatile markets. These results find robust statistical evidence. Furthermore, optimized carry trades have a lower correlation with traditional asset classes than standard carry trades. Traditional models of risk are less successful in explaining the returns of optimized carry trades.

Abstract: With the help of more than 700 reviewers, we assess the reproducibility of nearly 500 articles published in the journal Management Science before and after the introduction of a new Data and Code Disclosure policy in 2019. When considering only articles for which data accessibility and hardware and software requirements were not an obstacle for reviewers, the results of more than 95% of articles under the new disclosure policy could be fully or largely computationally reproduced. However, for 29% of articles, at least part of the data set was not accessible to the reviewer. Considering all articles in our sample reduces the share of reproduced articles to 68%. These figures represent a significant increase compared with the period before the introduction of the disclosure policy, where only 12% of articles voluntarily provided replication materials, of which 55% could be (largely) reproduced. Substantial heterogeneity in reproducibility rates across different fields is mainly driven by differences in data set accessibility. Other reasons for unsuccessful reproduction attempts include missing code, unresolvable code errors, weak or missing documentation, and software and hardware requirements and code complexity. Our findings highlight the importance of journal code and data disclosure policies and suggest potential avenues for enhancing their effectiveness.

Abstract: This study proposes a novel joint optimization approach for international portfolios, optimizing the allocation of stocks and exposure to currencies. We employ several equity characteristics including momentum, value, and size for equity allocation and currency interest rate, momentum, and value characteristics for currency allocation. Our out-of-sample analysis finds a 55\% increase in the portfolios' Sharpe ratio, after transaction and rebalancing costs, compared to the value-weighted benchmark, with no significant impact on overall volatility. This research highlights the importance of jointly optimizing equity and currency strategies in portfolio construction and offers insights to international investors aiming to improve their risk-adjusted returns.

Status: Review and Resubmit (Review of Asset Pricing Studies)