Learning From "Do Foreign Exchange Markets Still Trend"

The paper suggests that the era of easy profits from simple trend following in major currencies is over.

In this article, Absolute Momentum will be used interchangeably with trend following or time series momentum. Relative Momentum will be used interchangeably with cross-sectional momentum or relative strength.


 The paper employs three moving averages crossovers to produce trading signals. The periods used are namely 5days-20days, 1day-5days and 20days-200days.

“Exhibit 1” of the paper (reproduced below) shows the average annual returns for the major currencies. The paper suggests that the performance has been dismal in recent years.

Do Foreign Exchange Markets Still Trend - Kuntara Pukthuanthong-Le - exhibit1

Source: Do Foreign Exchange Markets Still Trend

 

However performance is positive when the authors applied the same strategy to exotic currencies, as shown in “Exhibit 4” of the paper, reproduced below.

Do Foreign Exchange Markets Still Trend - Kuntara Pukthuanthong-Le - exhibit4

Source: Do Foreign Exchange Markets Still Trend


Research Paper: Do Foreign Exchange Markets Still Trend?

Authors: Kuntara Pukthuanthong-Le, Richard M. Levich, Lee R. Thomas

Organizations: San Diego State University, New York University, Allianz Global Investors

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