Working Paper
Can risk explain the profitability of technical trading in currency markets?
Abstract: Academic studies show that technical trading rules would have earned substantial excess returns over long periods in foreign exchange markets. However, the approach to risk adjustment has typically been rather cursory. We examine the ability of a wide range of models: CAPM, quadratic CAPM, downside risk CAPM, C-CAPM, Carhart?s 4-factor model, an extended C-CAPM with durable consumption, Lustig-Verdelhan (LV) factors, volatility, skewness and liquidity to explain these technical trading returns. No model plausibly accounts for a substantial amount of technical profitability in the foreign exchange market.
JEL Classification: F31; G11; G12; G14;
https://doi.org/10.20955/wp.2014.033
Status: Published in Journal of International Money and Finance
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Bibliographic Information
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2014-10-30
Number: 2014-33
Pages: 55 pages
Related Works
- Publisher Article (2020-09-11) : Can risk explain the profitability of technical trading in currency markets?
- Working Paper Revision (2020-06-12) : Can risk explain the profitability of technical trading in currency markets?
- Working Paper Original (2014-10-30) : You are here.