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A Simple Test of Momentum in Foreign Exchange Markets

Andres Garcia-Suaza () and Jose Gomez-Gonzalez ()

Borradores de Economia from Banco de la Republica de Colombia

Abstract: This study proposes a new method for testing for the presence of momentum in nominal exchange rates, using a probabilistic approach. We illustrate our methodology estimating a binary response model using information on local currency / US dollar exchange rates of eight emerging economies. After controlling for important variables affecting the behavior of exchange rates in the short-run, we show evidence of exchange rate inertia; in other words, we find that exchange rate momentum is a common feature in this group of emerging economies, and thus foreign exchange traders participating in these markets are able to make excess returns by following technical analysis strategies. We find that the presence of momentum is asymmetric, being stronger in moments of currency depreciation than of appreciation. This behavior may be associated with central bank intervention.

Keywords: Momentum; foreign exchange markets; hazard duration analysis; emerging economies. (search for similar items in EconPapers)
JEL-codes: C41 G14 G15 (search for similar items in EconPapers)
Date: 2011-03
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https://doi.org/10.32468/be.647 (application/pdf)

Related works:
Journal Article: A Simple Test of Momentum in Foreign Exchange Markets (2012) Downloads
Working Paper: A simple test of momentum in foreign exchange markets (2011) Downloads
Working Paper: A Simple Test of Momentum in Foreign Exchange Markets (2011) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:647

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