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A simple test of momentum in foreign exchange markets

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Date
2011-03
Author
Garcia-Suaza, Andres
Gómez González, Juan Eduardo
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URI
https://ideas.repec.org/p/col/000092/008170.html...

Abstract
This study proposes a new method for testing for the presence of momentum in nominal exchange rates, using a probabilistic approach. We illustrate our methodology estimating a binary response model using information on local currency / US dollar exchange rates of eight emerging economies. After controlling for important variables a§ecting the behavior of exchange rates in the short-run, we show evidence of exchange rate inertia; in other words, we Önd that exchange rate momentum is a common feature in this group of emerging economies, and thus foreign exchange traders participating in these markets are able to make excess returns by following technical analysis strategies. We Önd that the presence of momentum is asymmetric, being stronger in moments of currency depreciation than of appreciation. This behavior may be associated with central bank intervention

Keyword

Momentum ; Foreign exchange markets ; Hazard duration analysis ; Emerging economies ;

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https://ideas.repec.org/p/col/000092/008170.html...

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