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Temporal Patterns in Foreign Exchange Returns and Options

Author

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  • MAXIME CHARLEBOIS
  • STEPHEN SAPP

Abstract

Although the foreign exchange market is believed to be one of the most efficient financial markets in the world, there is significant evidence that technical analysis is profitable in this market. In this study we investigate the ability of information from the options market to supplement the commonly used information on past prices to predict temporal patterns in foreign exchange returns. We find that strategies using information from at-the-money options were more consistently profitable than the commonly used strategies based on only historical spot exchange rates (past prices). Consequently, options appear to contain information regarding future spot exchange rate movements. Copyright 2007 The Ohio State University.

Suggested Citation

  • Maxime Charlebois & Stephen Sapp, 2007. "Temporal Patterns in Foreign Exchange Returns and Options," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 443-470, March.
    • Handle: RePEc:mcb:jmoncb:v:39:y:2007:i:2-3:p:443-470
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    References listed on IDEAS

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    Cited by:

    1. Christopher J. Neely & Paul A. Weller, 2011. "Technical analysis in the foreign exchange market," Working Papers 2011-001, Federal Reserve Bank of St. Louis.
    2. Lukas Menkhoff & Mark P. Taylor, 2007. "The Obstinate Passion of Foreign Exchange Professionals: Technical Analysis," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 936-972, December.
    3. Chng, Michael T., 2009. "Economic linkages across commodity futures: Hedging and trading implications," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 958-970, May.

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