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Commodity terms of trade as a foreign exchange pairs trading signal
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Resumo(s)
This paper analyses the usefulness of commodity terms of trade as a trading signal in a
universe of advanced and emerging market currencies. Three variations of the strategy were
tested; one which traded long and short positions, one only long positions and one only short
positions. All were found to generate statistically significant alpha in out-of-sample testing.
This paper contributes to the literature as it provides evidence that the uncovered interest rate
parity condition does not always hold, as well as providing examples of how commodity
terms of trade can be used as a trading signal to exploit these deviations.
Descrição
Palavras-chave
Commodity terms of trade Foreign exchange Currency Commodities Systematic trading strategy Financial markets Currency pairs Long short