Are All Currency Managers Equal?

The authors present a post-sample paper of currency fund managers showing that alpha hunters and especially alpha generators are more effective in providing diversification benefits for a global equity portfolio than currency managers who earn beta returns from popular style strategies or managers with high total returns regardless of their source. The paper is unusual in that they measure the alpha from currency investing using a simple factor model rather than based on total excess returns, that they use rankings of currency managers from an earlier published study and examine their performance truly out-of-sample, and finally that the data reflect actual trades and returns earned by these managers, so the data are not contaminated by the usual biases in hedge fund databases.