Gertsekovich D.A., Komandirova E.V.Published in:
Global Markets and Financial Engineering (Russian version)
– Volume 5, Number 2 (April-June 2018)

JEL classification: C53, G17, G32

Keywords: currency index, investment policy, portfolio analysis, return, risk


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Abstract:

The article studies the possibility to employ the quantitative techniques to construct the system of decision rules for effective investment solutions at currencies market. The currency index is used as an indicator to measure the currency strength or weakness. The U. S. Dollar Index is taken as the «reference» currency index. Estimations of the indexes of other currencies EUR, GBP, JPY, CAD, AUD, NZD and CHF are based on the values of the U. S. Dollar Index and the current bid prices for the following currency pairs: EUR/USD, USD/JPY, USD/CAD, GBP/USD, USD/CHF, AUD/USD, NZD/USD. The estimations apply the data between 01.01.2013 and 31.12.2016 on the US dollar index dynamics provided by the Federal Reserve System of the USA and the exchange rate values of the above currency pairs given by Finam Investment Company. The time span (bar) is one month. The returns for the time spans (bars) in focus are computed with the opening and closing prices. The next stage computes the average return and the mean-square deviation for the review historical record period, which allows to exclude from further consideration the currencies with next to none return. The fundamental propositions of the portfolio theory exclude the currencies on the right and on the bottom on the return-risk diagram. The remaining subgroup of the leading currencies USD, CHF, NZD and JPY is used to construct the «Return-Risk» model with the help of «Data analysis» customization code. The following stage assesses the performance of the transactions advised by the model. Testing is completed on independent material (according to 2017). As a result, four transactions (without regard to transaction costs and without margin) earned 5,5 % profit. Verification showed quite satisfactory results which indicate practical significance of the offered approach to investment policy shaping both at the level of a company within the framework of portfolio management, and for trading experts in «manual variant».

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