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Momentum effects: G10 currency return survivals


The aim of this paper is to analyse data dependencies and patterns in historic currency time series data and implement trading rules that lead to abnormal currency returns that cannot be explained by any systematic risk taking.

Author(s): Dr Natasha Todorovic - Cass Business School; Professor Andrew Clare - Cass Business School;

According to Fama (1970) weak form market efficiency suggests that no abnormal return can be earned by applying trading strategies that are purely based on historic price information. Although capital markets are generally regarded as weak and semi strong efficient, currency markets seem to defy the market efficiency model persistently.

The aim of this paper is to analyse data dependencies and patterns in historic currency time series data and implement trading rules that lead to abnormal currency returns that cannot be explained by any systematic risk taking.

This paper analyses momentum effects in G10 currencies by applying survival analysis common in life time statistics to shed a new light on the market efficiency within the currency market. For each of the 90 currency crosses the researchers model survival probabilities of positive and negative momentums obtained from a wide set of dual crossover moving average combinations.

Strong evidence of inefficiencies was found: empirical momentums stemming from longer (shorter) moving averages live shorter than (outlive) the theoretical bootstrapped signals. 'Enhanced' trading strategy based on this finding persistently outperforms the 'benchmark' trading rule.

The full article is now available below.

Attachment(s)
{Momentum Effects: G10 Currency Return Survivals}{https://www.cass.city.ac.uk/__data/assets/pdf_file/0006/368988/G10-momentum-paper.pdf}
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