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Are Momentum Crashes Pervasive Regardless of Strategy? Evidence from the Foreign Exchange Market

Last Updated on 10 February, 2024 by Rejaul Karim

The research paper “Are Momentum Crashes Pervasive Regardless of Strategy? Evidence from the Foreign Exchange Market” authored by Klaus Grobys and Jesper Haga probes into the domain of momentum strategies’ option-like behavior prevalent in the foreign exchange market.

This study rigorously examines the dynamic interplay of popular momentum strategies deployed in foreign exchange markets, fortifying the findings furnished by Daniel and Moskowitz (2013) that espouse the manifestation of robust option-like behavior in both momentum measures.

These measures are contingent upon the cumulative return from 12 and 6 months preceding the formation date to one month before the formation date.

Strikingly, the paper unearths a glaring absence of analogous evidence steering towards the non-existence of option-like behavior for the prominently exercised momentum strategy accentuating a one-month formation period.

The research, through its astute analysis, unfurls a profound narrative entrenched in the idiosyncrasies of momentum strategies’ option-like behavior, unraveling compelling insights into the capricious ebbs and flows of the foreign exchange market vis-à-vis currency markets and momentum crashes.

Abstract Of Paper

This paper studies the option-like behavior of popular momentum strategies implemented in foreign exchange markets. The results confirm those of Daniel and Moskowitz (2013) in finding strong option-like behavior for both momentum measures, based on the cumulative return from 12 and 6 months prior to the formation date to one month prior to the formation date. Surprisingly, there is no such evidence for the popular momentum strategy accounting for a one-month formation period.

Original paper – Download PDF

Here you can download the PDF and original paper of Are Momentum Crashes Pervasive Regardless of Strategy? Evidence from the Foreign Exchange Market.

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Author

Klaus Grobys
University of Vaasa; University of Jyväskyla

Jesper Haga
Hanken School of Economics – Department of Finance and Statistics

Conclusion

In culmination, the research paper “Are Momentum Crashes Pervasive Regardless of Strategy? Evidence from the Foreign Exchange Market” authored by Klaus Grobys and Jesper Haga, paints a vivid canvas enriched with a comprehensive investigation into the option-like behavior demonstrated by popular momentum strategies within the foreign exchange market.

The findings resoundingly mirror those of Daniel and Moskowitz (2013), affirming the potent prevalence of option-like behavior in the momentum measures hinged on the cumulative return from 12 and 6 months leading up to the formation date till one month before the formation date.

Curiously, the paper unfurls an enigma with the conspicuous absence of parallel evidence, pointing towards the dearth of option-like behavior in the widely embraced momentum strategy that accentuates a one-month formation period.

The study, through its incisive analysis, furnishes deep-seated insights delving into the capricious nuances of momentum crashes entrenched within the labyrinthine foreign exchange market, illuminating a rich tapestry of understanding that crystallizes the interplay of asset pricing, international financial markets, and momentum crashes.

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FAQ

r confirms the findings of Daniel and Moskowitz (2013) regarding strong option-like behavior in both momentum measures. These measures are based on the cumulative return from 12 and 6 months prior to the formation date to one month prior to the formation date.

Q3: What does the paper contribute to the understanding of momentum crashes in the foreign exchange market?

A3: The paper contributes to the understanding of momentum crashes in the foreign exchange market by providing insights into the option-like behavior of popular momentum strategies. It explores whether this option-like behavior is pervasive across different momentum strategies and highlights the absence of such behavior in a specific strategy with a one-month formation period.

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