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Do Momentum-Based Strategies Still Work in Foreign Currency Markets?

Published online by Cambridge University Press:  06 April 2009

John Okunev  and
Derek White
John Okunev
Affiliation:
[email protected], Principal Global Investors, Level 11, 888 7th Avenue, New York, NY 10019;
Derek White
Affiliation:
White, [email protected], School of Banking and Finance, University of New South Wales, High Street Quad Building, Kensington, NSW 2052, Australia.
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Abstract

This paper examines the performance of momentum trading strategies in foreign exchange markets. We find the well-documented profitability of momentum strategies during the 1970s and the 1980s has continued throughout the 1990s. Our approach and findings are insensitive to the specification of the trading rule and the base currency for analysis. Finally, we show that the performance is not due to a time-varying risk premium but rather depends on the underlying autocorrelation structure of the currency returns. In sum, the results lend further support to prior momentum studies on equities. The profitability to momentum-based strategies holds for currencies as well.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 38 , Issue 2 , June 2003 , pp. 425 - 447
Copyright
Copyright © School of Business Administration, University of Washington 2003

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