Technical Trading Rule Profitability in Currencies: It’s All About Momentum

Research in International Business and Finance, forthcoming

32 Pages Posted: 2 Feb 2022 Last revised: 11 Oct 2022

See all articles by Mark C. Hutchinson

Mark C. Hutchinson

University College Cork

Panagiotis Kyziropoulos

University College Cork - Cork University Business School

John O'Brien

University College Cork - Department of Accounting, Finance and Information Systems; University College Cork - Cork University Business School

Philip O'Reilly

University College Cork - Cork University Business School

Tripti Sharma

Queen's Management School, Queen's University Belfast

Date Written: February 2, 2022

Abstract

Recent academic and practitioner attention has focused on currency momentum. In this paper we replicate technical trading rules to assess their relationship with momentum. From an investment perspective, the average out-of-sample pre-transaction cost Sharpe ratio of technical trading rules is +0.06, but the returns do not survive modest transaction costs. For the full sample period, controlling for time series momentum, the returns to the trading rule portfolios are not statistically different from zero. Technical trading rules are fully explained by time series momentum and their profitability in currencies has disappeared.

Keywords: Momentum, technical trading rules, currencies

JEL Classification: F31, G14, G19

Suggested Citation

Hutchinson, Mark C. and Kyziropoulos, Panagiotis and O'Brien, John and O'Reilli, Philip and Sharma, Tripti, Technical Trading Rule Profitability in Currencies: It’s All About Momentum (February 2, 2022). Research in International Business and Finance, forthcoming , Available at SSRN: https://ssrn.com/abstract=4024310 or http://dx.doi.org/10.2139/ssrn.4024310

Mark C. Hutchinson (Contact Author)

University College Cork ( email )

O'Rahilly Building
College Road
Cork
Ireland

Panagiotis Kyziropoulos

University College Cork - Cork University Business School ( email )

West Wing, Main Quadrangle, College Road
Cork
Ireland

John O'Brien

University College Cork - Department of Accounting, Finance and Information Systems ( email )

O'Rahilly Building
College Road
Cork
Ireland

University College Cork - Cork University Business School ( email )

West Wing, Main Quadrangle, College Road
Cork
Ireland

Philip O'Reilli

University College Cork - Cork University Business School ( email )

West Wing, Main Quadrangle, College Road
Cork
Ireland

Tripti Sharma

Queen's Management School, Queen's University Belfast ( email )

Riddel Hall
185 Stranmillis Road
Belfast, BT9 5EE
United Kingdom

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