What Drives the Profitability of Momentum Strategies?

36 Pages Posted: 2 Feb 2017 Last revised: 18 Sep 2017

See all articles by Thomas Conlon

Thomas Conlon

University College Dublin

Richard M. Levich

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Valerio Potì

University College Dublin

Date Written: January 31, 2017

Abstract

We study the predictability of exchange rates of currencies of emerging and developed economies from 1994 to 2016 to shed light on the efficiency of currency markets and how it evolved over this time. For the currencies of emerging economies, our analysis of futures returns finds some evidence of excess-predictability, especially in the earlier parts of the sample period, consistent with the view that this portion of the foreign exchange market has only become efficient in recent times. When we turn our attention to excess-returns computed from spot exchange rates and spot interest rates, however, we find much less predictability. In particular, over our full sample period, we find no evidence of excess-predictability, in contrast with the results reported by Hsu et al. (2016) but in agreement with Kuang et al. (2014).

Keywords: Predictability, Momentum, Reversal, Horizon, Safe Havens, Market Efficiency

JEL Classification: G14, E44, C58

Suggested Citation

Conlon, Thomas and Levich, Richard M. and Potì, Valerio, What Drives the Profitability of Momentum Strategies? (January 31, 2017). Available at SSRN: https://ssrn.com/abstract=2909057 or http://dx.doi.org/10.2139/ssrn.2909057

Thomas Conlon

University College Dublin ( email )

Smurfit Graduate Business School
Blackrock
Co. Dublin, n/a
Ireland

HOME PAGE: http://www.ucd.ie/bankingfinance/staff/drthomasconlon/

Richard M. Levich

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0422 (Phone)
212-995-4256 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Valerio Potì (Contact Author)

University College Dublin ( email )

M. Smurfit School of Business
Carysfort Avenue, Blackrock
Dublin, Co Dublin
Ireland

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