Option-implied Hurst exponent for FX timing

This paper shows that the maturity structure of FX implied volatility contains economically useful information about when currency risk should be carried. We extract an option-implied Hurst coefficient from at-the-money volatility term structures and interpret it as a forward-looking measure of persistence in currency markets. The coefficient is used directly as the foreign-currency weight of a U.S. dollar investor, with the remaining wealth held in dollar cash. The rule requires no estimated thresholds, no fitted trading parameters, and no return forecasting model. Across nine major currencies, weekly rebalancing improves the downside profile of passive FX exposure by reducing volatility, maximum drawdown, and Value at Risk in every currency. Relative to a constant average-Hurst benchmark, it also lowers volatility in every currency and improves drawdowns and Sharpe ratios in most cases. The evidence is strongest at short horizons and survives transaction costs at the weekly frequency. Bootstrap and loss-based tests indicate that the economic value comes mainly from downside risk reduction rather than statistically significant Sharpe ratio improvements. The paper contributes a simple option-implied timing rule for FX exposure and shows that implied persistence is useful primarily as a risk-state variable rather than as a pure alpha signal.