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

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

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.

Suggested Citation

  • Hutchinson, Mark C. & Kyziropoulos, Panagiotis E. & O’Brien, John & O’Reilly, Philip & Sharma, Tripti, 2022. "Technical trading rule profitability in currencies: It’s all about momentum," Research in International Business and Finance, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:riibaf:v:63:y:2022:i:c:s0275531922001659
    DOI: 10.1016/j.ribaf.2022.101779
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    More about this item

    Keywords

    Currency; Technical trading; Time series momentum;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G19 - Financial Economics - - General Financial Markets - - - Other

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