The relation between currency momentum and hedge fund returns

Abstract

In this thesis we are developing our own time series momentum factor to help explain the returns of currency trading hedge funds. We are also including both a time series momentum factor and cross-sectional momentum factors from the literature for a better comparison. We regress the hedge fund returns on each factor in addition to the well-known Fung & Hsieh factors to see how well the factors can explain these returns. Our findings indicate that the momentum factors explain the currency trading hedge fund returns well. We conclude that currency trading hedge funds do use currency momentum strategies to some extent.