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Combining mean reversion and momentum trading strategies in foreign exchange markets (2010)
| Content Provider | CiteSeerX |
|---|---|
| Author | Serban, Alina F. |
| Abstract | The literature on equity markets documents the existence of mean reversion and momentum phenomena. Researchers in foreign exchange markets find that foreign exchange rates also display behaviors akin to momentum and mean reversion. This paper implements a trading strategy combining mean reversion and momentum in foreign exchange markets. The strategy was originally designed for equity markets, but it also generates abnormal returns when applied to uncovered interest parity deviations for ten countries. I find that the pattern for the positions thus created in the foreign exchange markets is qualitatively similar to that found in the equity markets. Quantitatively, this strategy performs better in foreign exchange markets than in equity markets. Also, it outperforms traditional foreign exchange trading strategies, such as carry trades and moving average rules. |
| File Format | |
| Journal | Journal of Banking and Finance |
| Language | English |
| Publisher Date | 2010-01-01 |
| Access Restriction | Open |
| Subject Keyword | Foreign Exchange Market Mean Reversion Equity Market Momentum Trading Strategy Uncovered Interest Parity Deviation Carry Trade Traditional Foreign Exchange Trading Strategy Trading Strategy Average Rule Equity Market Document Abnormal Return Foreign Exchange Rate Momentum Phenomenon Ten Country |
| Content Type | Text |
| Resource Type | Article |
