Currency return predictability: utilising forward curve information

We find that BM strategies yield significant excess returns and high Sharpe ratios across different formation periods: BM-3 performs best in FX markets, a 12-month period is optimal for commodities and bonds, and a 6-month shows the highest yield in equity indexes.

Decomposing the BM signal reveals its components' relationships with market anomalies and their distinct contributions. Carry and momentum factors drive BM returns in currency and commodity markets, while the second-nearest forward contract primarily explains the BM returns most in bonds and equities. Adding BM to panel regression models slightly improves regression fit.