Time-Varying Risk Premia, Volatility, and Technical Trading Rule Profits: Evidence from Foreign Currency Futures Markets

Posted: 7 Jan 2008

See all articles by Bong-Chan Kho

Bong-Chan Kho

Seoul National University, Business School

Abstract

This paper re-examines the efficiency of foreign currency futures markets by evaluating the role of time-varying risk premia and volatility in explaining technical trading rule profits. The results show that large parts of the technical rule profits can be explained by the time-varying risk premia estimated from a general model for the conditional CAPM: The bootstrap distributions for the profits under the null model average one-third to one-half of the actual profits and enclose the actual profits well within the 90% confidence intervals. Time-varying conditional volatility explains an additional 10% of the profits.

Keywords: Technical analysis, Time-varying risk premium, CAPM, GARCH-M model

JEL Classification: F31, G13, G12

Suggested Citation

Kho, Bong-Chan, Time-Varying Risk Premia, Volatility, and Technical Trading Rule Profits: Evidence from Foreign Currency Futures Markets. Journal of Financial Economics (JFE), Vol. 41, No. 2, 1996, Available at SSRN: https://ssrn.com/abstract=1081163

Bong-Chan Kho (Contact Author)

Seoul National University, Business School ( email )

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