"We find that a substantial proportion of returns earned by active currency managers can be explained by indices of three common currency strategies (carry, trend, and value) and a fourth factor that proxies for volatility in currency markets. The style factor regression methodology allowed us to decompose overall returns into beta returns that reflect exposure to the three common strategies and alpha returns that reflect excess performance. As a group, currency managers do not earn excess returns. But some managers do achieve excess returns, and many managers exhibit style persistence over time."

"We conclude that adding a relatively small allocation of currency exposure to a global equity portfolio can have a meaningful impact on the portfolio’s overall performance characteristics. Not surprisingly, adding currency managers who are alpha generators has a larger impact than adding currency managers who are only generating beta returns from the common currency strategies. But adding currency exposure even in the form of a naive application of the common strategies helps to enhance the overall performance of a global equity portfolio."