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A Simple Test of Momentum in Foreign Exchange Markets

  • José Eduardo Gómez-González
  • Andrés F. García-Suaza

This study proposes a new method for testing for the presence of momentum in nominal exchange rates, using a probabilistic approach. Using data for eight emerging economies, we show evidence of exchange rate inertia; however, the presence of momentum is asymmetric, being stronger in moments of currency depreciation than in moments of appreciation. This behavior may be associated with central bank intervention.

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Article provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.

Volume (Year): 48 (2012)
Issue (Month): 5 (September)
Pages: 66-77

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Handle: RePEc:mes:emfitr:v:48:y:2012:i:5:p:66-77
Contact details of provider: Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024

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  1. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
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  4. Tigran Poghosyan & Evžen KoÄenda & Petr ZemÄik, 2008. "Modeling Foreign Exchange Risk Premium in Armenia," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 44(1), pages 41-61, January.
  5. Blake LeBaron, . "Technical Trading Rule Profitability and Foreign Exchange Intervention," Working papers _002, University of Wisconsin - Madison.
  6. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Working Papers 111, Princeton University, Department of Economics, Center for Economic Policy Studies..
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  8. Christopher J. Neely, 2001. "The practice of central bank intervention: looking under the hood," Review, Federal Reserve Bank of St. Louis, issue May, pages 1-10.
  9. Dittmar, Robert & Neely, Christopher J & Weller, Paul, 1996. "Is Technical Analysis in the Foreign Exchange Market Profitable? A Genetic Programming Approach," CEPR Discussion Papers 1480, C.E.P.R. Discussion Papers.
  10. Okunev, John & White, Derek, 2003. "Do Momentum-Based Strategies Still Work in Foreign Currency Markets?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(02), pages 425-447, June.
  11. Matías Tapia & Andrea Tokman, 2004. "Effects of Foreign Exchange Intervention under Public Information: The Chilean Case," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Spring 20), pages 215-256, January.
  12. Michel Beine & Jérôme Lahaye & Sébastien Laurent & Christopher J. Neely & Franz C. Palm, 2007. "Central bank intervention and exchange rate volatility, its continuous and jump components," Working Papers 2006-031, Federal Reserve Bank of St. Louis.
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  15. Gómez-González, José Eduardo & Hinojosa, Inés Paola Orozco, 2010. "Estimation of conditional time-homogeneous credit quality transition matrices," Economic Modelling, Elsevier, vol. 27(1), pages 89-96, January.
  16. repec:pri:cepsud:91malkiel is not listed on IDEAS
  17. Juan José Echavarría & Mauricio Villamizar & Diego Vásquez, 2010. "Impacto de las intervenciones cambiarias sobre el nivel y la volatilidad de la tasa de cambio en Colombia," Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 28(62), pages 12-69, Junio.
  18. Pontines, Victor & Rajan, Ramkishen S., 2011. "Foreign exchange market intervention and reserve accumulation in emerging Asia: Is there evidence of fear of appreciation?," Economics Letters, Elsevier, vol. 111(3), pages 252-255, June.
  19. Martin Evans and Richard K. Lyons, 2002. "Informational Integration and FX Trading," Working Papers gueconwpa~02-02-11, Georgetown University, Department of Economics.
  20. Luis Muga & Rafael Santamaría, 2007. "The Momentum Effect in Latin American Emerging Markets," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 43(4), pages 24-45, August.
  21. Levich, Richard M, 1989. "Is the Foreign Exchange Market Efficient?," Oxford Review of Economic Policy, Oxford University Press, vol. 5(3), pages 40-60, Autumn.
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  24. Domac, Ilker & Mendoza, Alfonso, 2004. "Is there room for foreign exchange interventions under an inflation targeting framework ? Evidence from Mexico and Turkey," Policy Research Working Paper Series 3288, The World Bank.
  25. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 1-48.
  26. Taylor, Mark P. & Allen, Helen, 1992. "The use of technical analysis in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 11(3), pages 304-314, June.
  27. Michael Sager & Mark P. Taylor, 2008. "Commercially Available Order Flow Data and Exchange Rate Movements: "Caveat Emptor"," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(4), pages 583-625, 06.
  28. Christopher J. Neely & Paul A. Weller, 2011. "Technical analysis in the foreign exchange market," Working Papers 2011-001, Federal Reserve Bank of St. Louis.
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