To estimate the four-factor model, researchers require data on currency manager returns and factors that proxy for types of trading strategies and exposures that currency managers would be likely to utilize.
Pojarliev and Levich (2008) analyzed the returns of currency managers included in the Barclay Currency Traders Index (BCTI). The BCTI is an equal-weighted composite of managed programs that trade currency futures and forwards. The BCTI offers one representative benchmark for the performance of the currency management industry.21 The number of funds in the BCTI varied from about 40 to 70 between 1973 and 2004 and then steadily increased to 114 in 2007. After a decline during the global financial crisis, by the end of 2010, the BCTI included 119 currency programs.
To examine the relationship between currency manager returns and style factors, Pojarliev and Levich (2008) used monthly data on the BCTI for the period from January 1990 until December 2006 (204 months). Exhibit 1.1 Panel A shows the results for Equation (17.1) for the entire sample period (row 1) and two subperiods (rows 2 and 3). The style factors for this estimation were the Citibank Beta1 G10 Carry Index22 as a proxy for a carry factor, the
AFX Currency Management index as a proxy for the trend factor, the Citibank Beta1 G10 PPP index as a proxy for the value ...