IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Random walk currency futures profits revisited

  • Kuntara Pukthuanthong
  • Lee R. Thomas III
  • Carlos Bazan
Registered author(s):

    Purpose – Recent research indicates that the random walk hypothesis (RWH) approximately describes the behavior of major dollar exchange rates during the post-1973 float. The present analysis seeks to examine the profitability of currency futures trading rules that assume that spot exchange rates can be adequately modeled as a driftless random walk. Design/methodology/approach – Two random walk currency futures trading rules are simulated over all available data from the period 1984-2003. In both cases, the investor buys currencies selling at a discount and sells those selling at a premium, as the RWH implies. The two rules differ only in the way they allocate the hypothetical investor's resources among long and short foreign currency positions. Findings – Results show that an investor who used these trading strategies over the past decade would have enjoyed large cumulative gains, although periods of profit were interrupted by periods of substantial loss. Research limitations/implications – The findings encourage the hope that profitable random-walk-based strategies for currency futures trading can be devised. The simulation results have important implications for those willing to hedge, borrowers, and speculators. Originality/value – This paper provides evidence that purchasing futures contracts on currencies priced at a discount and selling futures contracts priced at a premium has generally been a profitable trading strategy during the last two decades of floating exchange rates.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.emeraldinsight.com/Insight/viewContentItem.do;jsessionid=BA5A5AFFF45EA2E9D5554D9AF6A24273?contentType=Article&contentId=1612602
    Download Restriction: Cannot be freely downloaded

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Emerald Group Publishing in its journal International Journal of Managerial Finance.

    Volume (Year): 3 (2007)
    Issue (Month): 3 (July)
    Pages: 263-286

    as
    in new window

    Handle: RePEc:eme:ijmfpp:v:3:y:2007:i:3:p:263-286
    Contact details of provider: Web page: http://www.emeraldinsight.com

    Order Information: Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
    Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=ijmf Email:


    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eme:ijmfpp:v:3:y:2007:i:3:p:263-286. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Louise Lister)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.