If You're So Smart: John Maynard Keynes and Currency Speculation in the Interwar Years

Abstract

This paper explores the risks and returns to currency speculation during the 1920s and 1930s. We study the performance of two well-known technical trading strategies (carry and momentum) and compare them with that of a fundamentals-based trader: John Maynard Keynes. Technical strategies were highly profitable during the 1920s and even outperformed Keynes. In the 1930s however, both technical strategies and Keynes performed relatively poorly. Whilst our results reveal the existence of profitable opportunities for currency traders in the interwar years, they suggest that such profits were necessary compensation for enduring the substantial risks which all strategies entailed.

Keywords: carry, momentum, foreign exchange, currency markets, currency crises

JEL Classification: F31, G15, G14, N22, N24