Maximally predictable currency portfolios

We investigate the predictability of G10 currencies with respect to lagged currency returns from perspective a U.S. investor, using maximally predictable portfolio (MPP) approach Lo and MacKinlay (1997). show that, out-of-sample, MPP yields higher Sharpe ratio, cumulative return lower maximum drawdown than both naïve equal-weighted an momentum trading strategies, that mean–variance investor would be willing pay performance fee switch portfolios MPP. The has performed particularly well since 2008 financial crisis, in contrast portfolio, value which declined significantly over this period. Our results are robust estimation window length, type level weight constraints transaction costs.