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Out-of-sample evidence on the returns to currency trading

Accominotti, Olivier and Chambers, David (2014) Out-of-sample evidence on the returns to currency trading. CEPR discussion papers (9852). Centre for Economic Policy Research (Great Britain), London, UK.

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We document the existence of excess returns to naïve currency trading strategies during the emergence of the modern foreign exchange market in the 1920s and 1930s. This era of active currency speculation constitutes a natural out-of-sample test of the performance of carry, momentum and value strategies well documented in the modern era. We find that the positive carry and momentum returns in currencies over the last thirty years are also present in this earlier period. In contrast, the returns to a simple value strategy are negative. In addition, we benchmark the rules-based carry and momentum strategies against the discretionary strategy of an informed currency trader: John Maynard Keynes. The fact that the strategies outperformed a superior trader such as Keynes underscores the outsized nature of their returns. Our findings are robust to controlling for transaction costs and, similar to today, are in part explained by the limits to arbitrage experienced by contemporary currency traders.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2014 The Authors
Divisions: Economic History
Subjects: H Social Sciences > HG Finance
Date Deposited: 11 Oct 2017 10:41
Last Modified: 16 May 2024 12:05

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