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
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.32468/be.647 (application/pdf)

Related works:
Journal Article: A Simple Test of Momentum in Foreign Exchange Markets (2012)
Working Paper: A simple test of momentum in foreign exchange markets (2011)
Working Paper: A Simple Test of Momentum in Foreign Exchange Markets (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:647

Access Statistics for this paper

More papers in Borradores de Economia from Banco de la Republica de Colombia Cra 7 # 14-78. Contact information at EDIRC.
Bibliographic data for series maintained by Clorith Angélica Bahos Olivera ().