Temporal Patterns in Foreign Exchange Returns and Options

Maxime Charlebois and Stephen Sapp

Journal of Money, Credit and Banking, 2007, vol. 39, issue 2-3, 443-470

Abstract: Although the foreign exchange market is believed to be one of the most efficient financial markets in the world, there is significant evidence that technical analysis is profitable in this market. In this study we investigate the ability of information from the options market to supplement the commonly used information on past prices to predict temporal patterns in foreign exchange returns. We find that strategies using information from at-the-money options were more consistently profitable than the commonly used strategies based on only historical spot exchange rates (past prices). Consequently, options appear to contain information regarding future spot exchange rate movements. Copyright 2007 The Ohio State University.

Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:39:y:2007:i:2-3:p:443-470

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