The Currency Allocation In Chinese Perspective

This paper does a research of the currency allocation in the process of global asset allocation from the perspective of Chinese investor, based on Markowitz`s portfolio theory. Currency allocation and portfolio allocation are two parts of global asset allocation, which accordingly have two sets of variables.There are two parts of currency allocation, constructing and selecting models, adjusting and using models. Firstly, this paper constructs efficient-market-model which is based on the efficient market assumption, and inefficient-market-model that is based on the inefficient market assumption. Secondly, it adjusts the selected model by short-term factors and gets the final model.This paper chooses USD, JPY, EUR, AUD and CNY to be the sample. And it uses the relative changing rate of exchange rate, the relative changing rate of GDP and the relative changing rate of M2 for a binary regression in order to derive the expected exchange rate return in the inefficient-market-model. The simulating allocation based on data from Jan.2005 to Sept.2011suggests that both the efficient-market-model and the inefficient-market-model perform much better than the equal-weighted currency allocation, and the inefficient-market-model performs better than efficient-market-model when world economy grows steadily and worse when the world is in economic crisis.Currently, the world economy is in a steady period after Sub-prime Crisis, and the inefficient-market-model works better than the efficient-market-model. However, the GDP growth rate is decreasing in short term and there is difficult in China and Europe, the adjustment turns to be necessary and this paper gives the adjustment based on the fundamental circumstances of China, America, Japan, Euro-zone and Australia.