Currency momentum strategies yield ‘striking’ results
Research published by Cass Business School in London suggests that investing in momentum trading strategies for currency can yield 10% annually.
The research, due to be published in the Journal of Financial Economics, analysed 48 currencies against the US dollar from 1976 to 2010.
“We find large currency momentum strategies yield surprisingly high unconditional excess returns of up to 10 per cent per a year,” said co-author, professor Lucio Sarno of Cass Business School.
“These returns are particularly striking given they persist in currency markets characterised by sophisticated investors, huge trading volumes, an absence of short-selling constraints and considerable central bank interference.”
However, the study also warns that while such investing can yield results, it does not come without risk to returns. Success is skewed towards minor currencies, where transction costs are higher – up to 50% of the momentum returns.
To read the report click here: [asset_library_tag 5270,Currency Momentum Strategies]