The impact of financial stress on FX trading strategies

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Type and Duration

FFF-Förderprojekt, June 2024 until May 2025

Coordinator

Finance

Main Research

Wealth Management

Description

The markets for the major world currencies are highly liquid with large volumes and numbers of transactions. Trading in these markets is 24/7. Compared to markets for other financial assets, these markets should therefore be closest to the theoretical ideal of efficient markets. Many studies confirm this by showing that classical economic FX rate models find it difficult to explain FX rates better than a simple random walk model ("Meese and Rogoff puzzle"). In contrast to that, other studies show exactly for these markets a persistent success of technical trading rules. There are hints that the forecasting power of certain technical indicators is regime-dependent, i.e. they behave differently in times of crisis compared to calm market phases. In this project, we will investigate the effect of in-cluding various crisis indicators on the performance of FX trading strategies.

Principal Investigator

Prof. Dr. Michael Hanke