Abstract
Chapter 1: What Flows Around Comes Around:
Mean Reversion and Portfolio Flows
This paper investigates mean reversion properties of real effective exchange rates (REERs)
using a semiparametric quantile autoregression approach. This method accounts for nonnormality
and captures asymmetric and dynamic adjustments towards the REER’s long run
equilibrium, conditional on the size of the shock to the REER. Due to the nonstandard limiting
distribution of our tests, we apply a resampling procedure for robust inference. Using
a sample of 29 countries over the period 1980–2017, we indeed show that the REER features
nonlinear meanreverting tendencies following large shocks. The REER adjusts dynamically
and asymmetrically towards its long run equilibrium, conditional on the size of the shock. We
find halflives of less than one year in some cases for the most extreme quantiles. Additionally,
panel regressions indicate that this behavior can be explained by portfolio flows. Large
deviations in the REER from its long run mean are followed by debt portfolio flows from international
investors. These flows are associated with an appreciation in the REER, conditional
on the level of deviation and the shocks incurred, leading to faster mean reversion in REERs.
In the most extreme quantile, the flows move the REER back towards its mean by 1.78% per
month.
Chapter 2: Understanding VolatilityManaged
Portfolios
Contrary to the intuition that the standard riskreturn tradeoff should lead to underperformance
of a portfolio that scales down exposure during volatile periods a recent paper by Moreira
and Muir (2017) actually shows that volatilitymanaged portfolios produce robust and
significant alphas. The present paper investigates the mechanisms that lead to the outperformance
of volatility management. By implementing timing regressions and relating returns
of a volatilitymanaged portfolio to discountrate, cashflow and expected volatility news we
provide evidence that volatility management outperforms by levering up good times without
increasing downside exposure to fundamental risk drivers. On the contrary, during the most
severe cumulative news shocks (either to cash flows, discount rates or expected volatility) the
scaling strategy suffers less than the buyandhold portfolio and, thus, increases investor utility.
Furthermore, we relate volatilitymanaged strategies to popular timing strategies based
on a measure of riskneutral variance as a lower bound for the expected equity risk premium.
We find that strategies that combine elements from both, volatility management and timing
based on riskneutral variance, outperform over a recent sample period and produce significant
alphas in spanning regressions, posing further puzzles for the asset pricing literature.
Chapter 3: Analyst Forecasts and Currency Markets
I examine the forecasting performance, directional accuracy, rationality and economic value
of analyst forecasts and characteristics of investment portfolios built from these forecasts for
30 currency pairs from 2006 to 2020. My results show that analyst forecasts perform worse
than forecasts based on a random walk and forward rates and that they are biased and do
not provide significant economic value to investors. Forecasts from global systemically important
banks do not differ from nonsystemically important banks in terms of forecasting ability.
Median forecasts may strongly deviate from market expectations, while analyst forecast dispersion
is positively associated with future currency returns. Portfolios built from analyst
forecasts tend to strongly underperform the dollar factor, value, carry and momentum portfolios
and are spanned by them. My findings indicate that expected returns extracted from
analyst forecasts are negatively related to realized excess returns in FX markets and thus contribute
to the literature on surveybased returns in asset pricing.
Mean Reversion and Portfolio Flows
This paper investigates mean reversion properties of real effective exchange rates (REERs)
using a semiparametric quantile autoregression approach. This method accounts for nonnormality
and captures asymmetric and dynamic adjustments towards the REER’s long run
equilibrium, conditional on the size of the shock to the REER. Due to the nonstandard limiting
distribution of our tests, we apply a resampling procedure for robust inference. Using
a sample of 29 countries over the period 1980–2017, we indeed show that the REER features
nonlinear meanreverting tendencies following large shocks. The REER adjusts dynamically
and asymmetrically towards its long run equilibrium, conditional on the size of the shock. We
find halflives of less than one year in some cases for the most extreme quantiles. Additionally,
panel regressions indicate that this behavior can be explained by portfolio flows. Large
deviations in the REER from its long run mean are followed by debt portfolio flows from international
investors. These flows are associated with an appreciation in the REER, conditional
on the level of deviation and the shocks incurred, leading to faster mean reversion in REERs.
In the most extreme quantile, the flows move the REER back towards its mean by 1.78% per
month.
Chapter 2: Understanding VolatilityManaged
Portfolios
Contrary to the intuition that the standard riskreturn tradeoff should lead to underperformance
of a portfolio that scales down exposure during volatile periods a recent paper by Moreira
and Muir (2017) actually shows that volatilitymanaged portfolios produce robust and
significant alphas. The present paper investigates the mechanisms that lead to the outperformance
of volatility management. By implementing timing regressions and relating returns
of a volatilitymanaged portfolio to discountrate, cashflow and expected volatility news we
provide evidence that volatility management outperforms by levering up good times without
increasing downside exposure to fundamental risk drivers. On the contrary, during the most
severe cumulative news shocks (either to cash flows, discount rates or expected volatility) the
scaling strategy suffers less than the buyandhold portfolio and, thus, increases investor utility.
Furthermore, we relate volatilitymanaged strategies to popular timing strategies based
on a measure of riskneutral variance as a lower bound for the expected equity risk premium.
We find that strategies that combine elements from both, volatility management and timing
based on riskneutral variance, outperform over a recent sample period and produce significant
alphas in spanning regressions, posing further puzzles for the asset pricing literature.
Chapter 3: Analyst Forecasts and Currency Markets
I examine the forecasting performance, directional accuracy, rationality and economic value
of analyst forecasts and characteristics of investment portfolios built from these forecasts for
30 currency pairs from 2006 to 2020. My results show that analyst forecasts perform worse
than forecasts based on a random walk and forward rates and that they are biased and do
not provide significant economic value to investors. Forecasts from global systemically important
banks do not differ from nonsystemically important banks in terms of forecasting ability.
Median forecasts may strongly deviate from market expectations, while analyst forecast dispersion
is positively associated with future currency returns. Portfolios built from analyst
forecasts tend to strongly underperform the dollar factor, value, carry and momentum portfolios
and are spanned by them. My findings indicate that expected returns extracted from
analyst forecasts are negatively related to realized excess returns in FX markets and thus contribute
to the literature on surveybased returns in asset pricing.
Original language  English 

Awarding Institution 

DOIs  
Publication status  Published  4 May 2021 