Improving performance of exchange rate momentum strategy using volatility information

摘要

In this paper, we detect how to improve the performance of exchange rate momentum strategy using volatility information. We consider a trading scheme which allocates wealth between momentum portfolio and Treasury bill and the weight of each asset is inversely dependent of the volatility forecasts. Our results indicate that this strategy significantly improves upon the momentum strategy, especially during the period of financial crisis. The superiority of our strategy is robust for the look-back periods from 1 to 6 months. The performance of our strategy can be further improved after imposing a constraint on the optimal weight of each asset. (C) 2018 Elsevier B.V. All rights reserved.