Prof. Geert Bekaert: Currency Rate Factors

CEF, hosted Columbia Business School international finance and foreign currency markets expert Prof. Geert Bekaert as part of a seminar series.

Sabancı University Center of Excellence in Finance (CEF) established with the founding sponsorship of Akbank held another seminar as part of its series with leading international academics. International Finance Expert and Columbia Business School Finance Professor Geert Bekaert visited Turkey for a lecture on "Currency Rate Factors”.

Columbia Business School Finance Professor Geert Bekaert's lecture at the Sabancı Center on Friday, April 20 was titled "Currency Rate Factors” and was attended by participants from bank treasuries, financial intermediaries, import/export divisions of manufacturing companies, and trading desks.

Sabancı University Finance Chair and CEF Founding Chairperson Professor Özgür Demirtaş expressed their pleasure to host a global academic like Prof. Geert Bekaert. Demirtaş continued, "CEF is continuing to organize certificate programs and series of seminars on finance in its second year. CEF has already become a leader in finance education in Turkey", and emphasized the importance of having a person as important as Geert Bekaert for the lecture.

Professor Bekaert summarized recent research on currency rate factors

An expert on the efficiency of foreign currency markets, macro economics, global market integration, and international stock markets, Prof. Bekaert discussed recent research on "currency rate factors" that may prove beneficial for the management of foreign currency portfolios or all other international portfolios susceptible to currency rate fluctuations.

Prof. Bekaert first focused on the ability of existing and new factor models to explain the correlation between the currency rate changes in G10 countries, and discussed the use of a "currency basket", a novel concept that represents the overall movement of a particular currency.

A dual-bloc structure to joint movements in currency rates

Professor Bekaert summarized carry, volatility, value and momentum factors among the types of extant currency rate factors, and said that a clustering analysis reveals a dual-bloc structure in currency rate comovements, with the first bloc being primarily composed of the US dollar, and the second bloc of European currencies.

According to Professor Bekaert, "Regardless of the currency rate perspective, a new parsimonious factor model that includes this 'clustering' factor fits all bilateral exchange rates well. The model also sheds light on a significant portion of fluctuations in currency rates in developing countries.”

Professor Bekaert discussed factors on currency rates in developing markets

Professor Bekaert took a closer look at the carry factor and focused on the distinction between "good" and "bad" carry trades constructed from G10 currencies.

Professor Bekaert stated, "Good strategies exhibit higher Sharpe ratios and sometimes positive revenue skewness, while bad strategies come with substantially lower Sharpe ratios and higly negative skewness. Interestingly enough, good carry trades do not involve the most typical carry currencies like the Australian dollar or Japanese yen.”

Prof. Bekaert finally discussed the factors existing in developing market currency rates.