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

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

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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.
Original languageEnglish
Article number101779
JournalResearch in International Business and Finance
Early online date04 Oct 2022
DOIs
Publication statusEarly online date - 04 Oct 2022

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