Technical trading rule profitability in currencies: It’s all about momentum

Mark C. Hutchinson, Panagiotis E. Kyziropoulos, O’Brien, John, O’Reilly, Philip and Tripti Sharma

Research in International Business and Finance, 2022, vol. 63, issue C

Abstract: Recent academic and practitioner attention has focused on currency momentum. In this paper we replicate technical trading rules to assess their relationship with momentum. We find the effectiveness of technical trading rules falls significantly over time, with the mean Sharpe Ratio of our sample of portfolios falling from 0.66 in our in-sample period to 0.06 out-of-sample. Further, the returns do not survive modest transaction costs out-of-sample. We identify time series momentum as the single common factor driving returns across the range of strategies. Any abnormal return generated by technical trading rules is fully explained by time series momentum.

Keywords: Currency; Technical trading; Time series momentum (search for similar items in EconPapers)
JEL-codes: F31 G14 G19 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:63:y:2022:i:c:s0275531922001659

DOI: 10.1016/j.ribaf.2022.101779

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