Do Foreign Exchange Markets Still Trend?

摘要

In the early years of floating exchange rates, the major currency rates versus the U.S. dollar trended, providing an extended opportunity for traders to use technical trend-following rules and to profit handsomely. The data we present suggest that it took 20 years before trend-following profits were substantially eliminated in the major currencies. Park and Irwin [2005] present similar results in other futures market contracts. Yet the poor prospects for profits have not deterred many foreign exchange traders from continuing technical analysis. Perhaps traders have come to use more sophisticated technical models based on more complex relationships or applied at higher frequencies, minute-by-minute or second-by-second. Or perhaps astute traders have moved to the road less traveled, what we have called the exotic currencies. It may take far less time for the exotics to become weak-form efficient. Indeed there is some evidence they are already responsible for lower returns from trend-trading than before, but the recent trading profits for exotic currencies are still attractive. There remain some perplexing dilemmas. First, why did it take 20 years for profits on trend-following to be eliminated in the major dollar exchange rates? Second, and more relevant to practitioners, is how long we can expect the exotic currencies to continue to trend, now that the positive results of speculating in them have been documented and published.