I examine the profitability of three simple foreign exchange technical trading rules (moving average, momentum, and relative strength index) before, during and after the 2007-2008 global financial crisis. The overall findings reveal that these technical indicators could produce statistically...

This paper investigates the momentum and reversal signals in exchange rate jumps in currency markets. Following exchange rate jumps, currencies from emerging markets appreciate, but currencies from developed economies depreciate. Stepwise multiple testing confirms non-jump exchange rate changes...

We derive a closed-form expression for the mean and marginal hedging demand on risky assets in long-term asset allocation problems for individuals with CRRA preferences. Our parametric portfolio policy rule accommodates an arbitrarily large number of state variables for predicting the state of...

Often, investors fully hedge their portfolios for currency risk. This can lead to significant drag in performance for currencies with negative carry. However, not hedging the foreign currency exposure can lead to significant drawdowns, especially for conservative investments. In this paper, we...

Past trends in fundamentals linked to economic activity and inflation predict currency returns. We find that a trading strategy that goes long currencies with strong economic momentum and short currencies with weak economic momentum exhibits an annualized Sharpe ratio of 0.70 and yields a...

We document carry trade returns based on the moments extracted from options on the underlying currencies. We establish three important results. First, a currency pair is predicted to have greater excess returns if option-implied returns are more volatile, are more left-skewed, and have fatter...

This paper provides a new test for whether different-currency assets are imperfect substitutes. The test exploits that under floating rates, changing public currency demand has no direct effect on monetary fundamentals, current or future. Price effects from imperfect substitutability are clearly...

This work studies the information content of trades in the world's largest over-the-counter(OTC) market, the foreign exchange (FX) market. It analyses a novel, comprehensiveorder flow dataset, distinguishing amongst different groups of market participantsand covering a large cross-section of...

Studying all possible pairs of eleven major currencies and eleven portfolios in 1976-2008 we show that, when there is no leverage, carry trade is significantly profitable for most currency pairs and portfolios. Positive returns do not diminish in time providing a strong case against the...

We sort currencies by countries' consumption growth over the past four quarters. Currency portfolios of countries experiencing consumption booms have higher Sharpe ratios than those of countries going through a consumption-based recession. A carry strategy that goes short in countries that are...