Last Updated on 10 February, 2024 by Rejaul Karim
The research paper “Is There Momentum or Reversal in Weekly Currency Returns?” authored by Ahmad Raza, Ben R. Marshall, and Nuttawat Visaltanachoti, endeavors to unravel the predominant phenomenon within short-horizon (one- to four-week) foreign exchange rate returns.
Delving into a comprehensive sample spanning 63 emerging and developed market currencies, the study scrutinizes the prevalence of momentum versus reversal effects. Conclusively, the findings lean towards momentum, eclipsing reversal as the dominant phenomenon.
Notably, momentum returns are discerned to reach as high as 9% per annum, underpinning the robust nature of the short-term momentum effect. Furthermore, the study ascribes larger returns in the earlier sub-period, aligning with a persistent existence in the more contemporary period.
Remarkably, it is ascertained that these strategies yield profitability across varying economic conditions, proving to be lucrative during US recessions and expansions as well as in both up and down currency markets.
The researchers’ profound insights significantly contribute to unraveling the intricacies of currency markets, adorning us with a deeper understanding of the dynamics governing momentum and reversal within weekly currency returns.
Abstract Of Paper
We investigate whether momentum or reversal is the dominant phenomenon in short horizon (one- to four-week) foreign exchange rate returns. We find, based on a broad sample of 63 emerging and developed market currencies, evidence of momentum rather than reversal. Momentum returns are as large as 9% p.a. The short-term momentum effect appears to be robust. Returns are larger in the earlier sub-period but still exist in the more recent period. The strategies are also profitable in US recessions and expansions, and in up and down currency markets.
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University of Otago – Department of Accountancy and Finance
Ben R. Marshall
Massey University – School of Economics and Finance
Massey University – Department of Economics and Finance
In conclusion, the research paper “Is There Momentum or Reversal in Weekly Currency Returns?” authored by Ahmad Raza, Ben R. Marshall, and Nuttawat Visaltanachoti delivers conclusive evidence tilting towards momentum as the prevailing phenomenon within short-horizon foreign exchange rate returns, overshadowing the influence of reversal.
The study’s findings unveil a compelling picture, with momentum returns soaring up to 9% per annum, underscoring the robustness of the short-term momentum effect. Equally noteworthy, the persistence of these returns across different periods resonates, solidifying their significance.
The strategies are reaffirmed to be profitable amidst varying economic or market conditions, be it during US recessions and expansions, or within both up and down currency markets.
The profound insights garnered by the researchers transcend traditional perceptions, offering a deeper perspective into the dynamics that govern momentum and reversal effects within weekly currency returns, paving the way for enhanced comprehension and informed decision-making within the realm of foreign exchange markets.
Q1: What is the focus of the research paper “Is There Momentum or Reversal in Weekly Currency Returns?”?
A1: The research paper investigates whether momentum or reversal is the dominant phenomenon in short-horizon (one- to four-week) foreign exchange rate returns. The study aims to unravel the prevailing pattern within weekly currency returns and determine whether momentum or reversal effects are more prominent.
Q2: What is the main finding of the research regarding momentum and reversal in currency returns?
A2: The main finding of the research leans towards momentum being the dominant phenomenon in short-horizon currency returns. Momentum returns are observed to be as large as 9% per annum, indicating the robust nature of the short-term momentum effect in the context of weekly currency returns.
Q3: How does the study assess the robustness of the short-term momentum effect?
A3: The study assesses the robustness of the short-term momentum effect by examining returns across different sub-periods. It notes that while returns are larger in the earlier sub-period, they still exist in the more recent period, reinforcing the persistence and robustness of the observed momentum effect.