EconPapers    
Economics at your fingertips  
 

Market timing and performance attribution in the ECB reserve management framework

Francesco Potente () and Antonio Scalia ()
Additional contact information
Francesco Potente: Bank of Italy

No 1062, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We study the performance of a group of foreign exchange reserve managers that are responsible for investing the ECB’s official reserves in US dollars, for a value of around $43 billion, using a new dataset which includes detailed portfolio holdings from 2006 to 2010. The ECB reserve managers display a positive ability at security selection overall. Two portfolio managers show market timing ability after adjusting for the non-linearity of the benchmark returns. For one portfolio manager, market timing ability is significantly related to the efficient use of public information. To pin down market timing, we develop a performance attribution model which identifies the contribution of the key portfolio managers’ strategies (duration, curve, and spread). We find that, among the active layers, the spread contribution seems the most significant; curve and duration bets, with some exceptions, have generally provided little value added. Our analysis supports the view that portfolio managers adopt diversified investment styles. This may explain the non-negligible result of the aggregate reserve portfolio, averaging 10 basis points on an annual basis, net of transaction costs. The more diversified the investment styles are, the more likely it is that portfolio managers make independent bets, which in turn may positively affect the risk-adjusted return of the aggregate portfolio.

Keywords: foreign exchange reserve management; bond portfolios (search for similar items in EconPapers)
JEL-codes: E58 G11 G15 (search for similar items in EconPapers)
Date: 2016-04
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.bancaditalia.it/pubblicazioni/temi-disc ... 062/en_tema_1062.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1062_16

Access Statistics for this paper

More papers in Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2020-08-03
Handle: RePEc:bdi:wptemi:td_1062_16