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Temporal Patterns in Foreign Exchange Returns and Options
Author(s) -
CHARLEBOIS MAXIME,
SAPP STEPHEN
Publication year - 2007
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.0022-2879.2007.00032.x
Subject(s) - foreign exchange market , foreign exchange , spot contract , financial market , financial economics , exchange rate , business , economics , monetary economics , finance , futures contract
Although the foreign exchange market is believed to be one of the most efficient financial markets in the world, there is significant evidence that technical analysis is profitable in this market. In this study we investigate the ability of information from the options market to supplement the commonly used information on past prices to predict temporal patterns in foreign exchange returns. We find that strategies using information from at‐the‐money options were more consistently profitable than the commonly used strategies based on only historical spot exchange rates (past prices). Consequently, options appear to contain information regarding future spot exchange rate movements.