Skip to main content Accessibility help

If You're So Smart: John Maynard Keynes and Currency Speculation in the Interwar Years

  • Olivier Accominotti (a1) and David Chambers (a2)


This article explores the risks and returns to currency speculation during the 1920s and 1930s. We study the performance of two well-known technical trading strategies (carry and momentum) and compare them with that of a fundamentals-based trader: John Maynard Keynes. Technical strategies were highly profitable during the 1920s and even outperformed Keynes. In the 1930s, however, both technical strategies and Keynes performed relatively poorly. While our results reveal the existence of profitable opportunities for currency traders in the interwar years, they suggest that such profits were necessary compensation for enduring the substantial risks that all strategies entailed.



Hide All

We thank Ann Carlos, Nick Crafts, Norman Cumming, Elroy Dimson, Marc Flandreau, Tim Guinnane, Mike Humphries, Antti Ilmanen, Naomi Lamoreaux, Richard Levich, Momtchil Pojarliev, Raghu Rau, Pedro Saffi, Lucio Sarno, Maik Schmeling, Christophe Spaenjers, Dick Sylla, Alan Taylor, Stefano Ugolini, and Niko Wolf, as well as two anonymous referees and participants at the LBS-Inquire Conference, CEPR Economic History Symposium, London FRESH Conference, Northern Finance Association Meeting (Ottawa), and Money Macro and Finance Conference (Durham), and in seminars at ICMA Centre (University of Reading), Humboldt University, NYU Stern School of Business, Warwick University, and Yale University, for advice and comments. Christopher Adan, Adam Denny, Alain Naef, Carlo Tanghetti, and Giorgio Vintani are also thanked for excellent research assistance. David Chambers acknowledges the support of the Newton Centre for Endowment Asset Management, and the Cambridge Endowment for Research in Finance, Judge Business School. All errors are ours.



Hide All
Abbey, Boris S., and John A., Doukas. “Do Individual Currency Traders Make Money?Journal of International Money and Finance 5 2015: 158–77.
Accominotti, Olivier, and Chambers, David. “Out-of-Sample Evidence on the Returns to Currency Trading.CEPR Discussion Paper, No. 9852, March 2014.
Andrews, Donald W. K.Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation.Econometrica 59, no. 3 1991: 817–58.
Asness, Clifford S., Moskowitz, Tobias J., and Heje, Lasse Pedersen. “Value and Momentum Everywhere.The Journal of Finance 68, no. 3 2013: 929–85.
Atkin, John. The Foreign Exchange Market of London. New York, NY: Routledge, 2005.
Berge, Travis, Jordà, Óscar, and Alan M., Taylor. “Currency Carry Trades.NBER International Seminar on Macroeconomics 7, no. 1 2011: 357–88.
British Library Archives and Manuscripts, London, United Kingdom.
Brunnermeier, Markus K., Nagel, Stefan, and Lasse H., Pedersen. “Carry Trades and Currency Crashes.NBER Macroeconomics Annual 23 2009: 313–47.
Burnside, Craig. “Carry Trades and Risk.” In The Handbook of Exchange Rates, edited by James, Jessica, Marsh, Ian, and Sarno, Lucio, 283312. Hoboken, NJ: John Wiley and Sons, 2012.
Burnside, Craig, Eichenbaum, Martin, Kleshchelski, Isaac, et al. “Do Peso Problems Explain the Returns to the Carry Trade?Review of Financial Studies 24, no. 3 2011: 853–91.
Burnside, Craig, Eichenbaum, Martin, and Rebelo, Sergio. “Carry Trade and Momentum in Currency Markets.Annual Review of Financial Economics 3 2011: 511–35.
Cassel, Gustav. “The Depreciation of the German Mark.The Economic Journal 29 1919: 492–96.
Cen, Jason, and Ian W., Marsh. “Off the Golden Fetters: Examining Interwar Carry Trade and Momentum.SSRN Working Paper, 2013. Also available online at
Chambers, David, and Dimson, Elroy. “John Maynard Keynes: Investment Innovator.Journal of Economic Perspectives 27, no. 3 2013: 213–28.
Chambers, David, Dimson, Elroy, and Foo, Justin. “Keynes the Stock Market Investor: A Quantitative Analysis.Journal of Financial and Quantitative Analysis 50, no. 4 2015: 843–68.
David, Chambers, and Kabiri, Ali. “Keynes and Wall Street.Newton Centre for Endowment Asset Management Working Paper, 2016.
Cheung, Yin-Wong, Chinn, Menzie D., and Pascual, Antonio Garcia. “Empirical Exchange Rates Models of the Nineties: Are Any Fit to Survive?Journal of International Money and Finance 24, no. 7 2005: 1150–75.
Clarke, Peter. Mr. Churchill's Profession: Statesman, Orator, Writer. London, UK: Bloomsbury Publishing, 2014.
Dimson, Elroy, Marsh, Paul, and Staunton, Mike. Triumph of the Optimists: 101 Years of Global Investment Returns. Princeton, NJ: Princeton University Press, 2002.
Dornbusch, Rudiger. “Expectations and Exchange Rate Dynamics.The Journal of Political Economy 84, no. 6 1976: 161–76.
Doskov, Nikolay, and Swinkels, Laurens. “Empirical Evidence on the Currency Carry Trade, 1900–2012.Journal of International Money and Finance 51 2015: 370–89.
Eichengreen, Barry. “Did Speculation Destabilize the French Franc in the 1920s?Explorations in Economic History 19, no. 1 1982: 71100.
Eichengreen, Barry. Golden Fetters: The Gold Standard and the Great Depression, 1919–1939. Oxford: Oxford University Press, 1992a.
Eichengreen, Barry. “More Speculation on Destabilizing Speculation.Explorations in Economic History 29, no. 1 (1992b): 9398.
Eichengreen, Barry, and Flandreau, Marc. “A Century and a Half of Central Banks, International Reserves and International Currencies.Norges Bank mimeo, June 2014.
Einzig, Paul. The Theory of Forward Exchange. London, UK: Macmillan, 1937.
Fama, Eugene. “Efficient Capital Markets: A Review of Theory and Empirical Work.The Journal of Finance 25, no. 2 1970: 383417.
Fama, Eugene. “Forward and Spot Exchange Rates.Journal of Monetary Economics 14, no. 3 1984: 319–38.
Fantacci, Luca, Marcuzzo, Maria Cristina, and Sanfilippo, Eleonora. “Speculation in Commodities: Keynes' ‘Practical Acquaintance’ With Futures Market.Journal of the History of Economic Thought 32, no. 3 2010: 397418.
Financial Times, various dates.
Flandreau, Marc, and Komlos, John. “Target Zones in Theory and History.Journal of Monetary Economics 53, no. 8 2006: 1979–95.
Frankel, Jeffrey, and Rose, Andrew. “Empirical Research on Nominal Exchange Rates.” In Handbook of International Economics, edited by Grossman, Gene M. and Rogoff, Kenneth, 1689–29. Amsterdam: North-Holland, 1995.
Frenkel, Jacob A. “Flexible Exchange Rates, Prices, and the Role of ‘News': Lessons from the 1970s.The Journal of Political Economy 89, no. 4 1981: 665705.
Friedman, Milton. Essays in Positive Economics. Chicago, IL: Chicago University Press, 1953.
Froot, Kenneth A., and Richard H., Thaler. “Anomalies: Foreign Exchange.Journal of Economic Perspectives 4, no. 3 1990: 179–92.
Gartley, H. M. Profits in the Stock Market. Pomeroy, WA: Lambert-Gann Pub. Co, 1935.
Gyntelberg, Jacob, and Schrimpf, Andreas. “FX Strategies in Periods of Distress.BIS Quarterly Review (December 2011): 2940.
Hansen, Lars Peter, and Robert J., Hodrick. “Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis.The Journal of Political Economy 88, no. 5 1980: 829–53.
Hodrick, Robert J., The Empirical Evidence on the Efficiency of Forward and Futures Foreign Exchange Markets. New York, NY: Harwood Academic Publishers, 1987.
Jobst, Clemens. “Market Leader: The Austro-Hungarian Bank and the Making of Foreign Exchange Intervention, 1896–1913.European Review of Economic History 13, special issue no. 3 2009: 287318.
Johnson, Norman J.Modified t-Tests and Confidence Intervals for Asymmetrical Populations.Journal of the American Statistical Association 73, no. 363 1978: 536–44.
Jordà, Óscar, and Alan M., Taylor. “Performance Evaluation of Zero Net-Investment Strategies.NBER Working Paper No. 17150, Cambridge, MA, June 2011.
Jordà, Óscar, and Alan M., Taylor. “The Carry Trade and Fundamentals: Nothing to Fear but the FEER Itself.Journal of International Economics 88 1 2012: 7490.
Keynes, John M. The Economic Consequences of the Peace. London: Macmillan, 1919.
Keynes, John M. A Tract on Monetary Reform. London, UK: Macmillan, 1923.
Keynes, John M. The Economic Consequences of Mr. Churchill. London, UK: Hogarth Press, 1925.
King's College Archives, Cambridge, United Kingdom.
Levich, Richard, and Thomas, Lee III. “The Significance of Technical Trading-Rule Profits in the Foreign Exchange Market: A Bootstrap Approach.Journal of International Money and Finance 12, no. 5 1993: 451–74.
Lustig, Hanno, and Verdelhan, Adrien. “The Cross-Section of Foreign Currency Risk Premia and Consumption Growth Risk.American Economic Review 97, no. 1 2007: 89117.
Lustig, Hanno, Roussanov, Nikolai, and Verdelhan, Adrien. “Common Risk Factors in Currency Markets.Review of Financial Studies 24, no. 11 2011: 3731–77.
Lustig, Hanno, Roussanov, Nikolai, and Verdelhan, Adrien. “Countercyclical Currency Risk Premia.Journal of Financial Economics 111 2014: 527–53.
Lyons, Richard. The Microstructure Approach to Exchange Rates. Cambridge, MA: MIT Press, 2001.
Maddison, Angus. Monitoring the World Economy, 1820–1992. OECD: OECD Development Centre, 1995.
McCloskey, Deirdre. “The Limits of Expertise: If You're So Smart, Why Ain't You Rich?The American Scholar 57, no. 3 1988: 393406.
McCloskey, Deirdre. If You're So Smart: The Narrative of Economic Expertise. Chicago, IL: University of Chicago Press, 1990.
Meese, Richard A., and Rogoff, Kenneth. “Empirical Exchange Rate Models of the Seventies: Do They Fit Out of Sample?Journal of International Economics 14, nos. 1–2 1983: 324.
Menkhoff, Lukas, Sarno, Lucio, Schmeling, Maik, et al. “Carry Trades and Global Foreign Exchange Volatility.The Journal of Finance 67, no. 2 (2012a): 681718.
Menkhoff, Lukas, Sarno, Lucio, Schmeling, Maik, et al. “Currency Momentum Strategies.Journal of Financial Economics 106, no. 3 (2012b): 660–84.
Menkhoff, Lukas, and Mark P., Taylor. “The Obstinate Passion of Foreign Exchange Professionals: Technical Analysis.Journal of Economic Literature 45, no. 4 2007: 936–72.
Michie, Ranald C.The City of London as a Global Financial Centre, 1880–1939: Finance, Foreign Exchange, and the First World War.” In Centre and Peripheries in Banking: the Historical Development of Financial Markets, edited by Cottrell, Philip, Lange, Even, and Olsson, Ulf, 4179. Aldershot: Ashgate, 2007.
Middleton, Amy. “Trading Style Analysis: A Quantitative Assessment of the Currency Industry.The Journal of Alternative Investments 8, no. 1 2006: 1428.
Miller, Hugh. The Foreign Exchange Market: A Practical Treatise on Post-War Foreign Exchange. London, UK: E. Arnold & Co, 1929.
Mitchell, Brian R. International Historical Statistics: Europe 1750–2005. London, UK: Macmillan, 2007.
Moggridge, Donald E., ed. The Collected Writings of John Maynard Keynes, vol IV. Cambridge: Cambridge University Press, 1971.
Moggridge, Donald E., ed. The Collected Writings of John Maynard Keynes, vol. XII. Cambridge: Cambridge University Press, 1983.
Moggridge, Donald E., ed. Maynard Keynes: An Economist's Biography. London: Routledge, 1992.
Neely, Christopher J., Weller, Paul A., and Joshua M., Ulrich. “The Adaptive Markets Hypothesis: Evidence from the Foreign Exchange Market.Journal of Financial and Quantitative Analysis 44, no. 2 2009: 467–88.
Newey, Whitney K., and Kenneth D., West. “A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix.Econometrica 55, no. 3 1987: 703–8.
Nurkse, Ragnar. International Currency Experience. Lessons of the Interwar Period. Geneva: League of Nations, 1944.
Okunev, John, and Derek R., White. “Do Momentum Based Strategies Still Work in Foreign Currency Markets?Journal of Financial and Quantitative Analysis 38, no. 2 2003: 425–47.
Peake, E. G. An Academic Study of Some Money Market and Other Statistics. London, UK: P. S. Ling & Sons, 1923.
Peel, David A., and Taylor, Mark P. “Covered Interest Rate Arbitrage in the Interwar Period and the Keynes-Einzig Conjecture.Journal of Money, Credit and Banking 34, no. 1 2002: 5175.
Pilbeam, Keith. International Finance, Fourth Edition. London, UK: Palgrave Macmillan, 2013.
Pojarliev, Momtchil, and Richard M., Levich. “Do Professional Currency Managers Beat the Benchmark?Financial Analysis Journal 64, no. 5 2008: 1832.
Pojarliev, Momtchil, and Richard M., Levich. “Trades of the Living Dead: Style Differences, Style Persistence and Performance of Currency Fund Managers.Journal of International Money and Finance 29, no. 8 2010: 1752–75.
Pojarliev, Momtchil, and Richard M., Levich. “Is There Skill or Alpha in Currency Investing?” In The Handbook of Exchange Rates, edited by James, Jessica, Marsh, Ian, and Sarno, Lucio, 471501. Hoboken, NJ: John Wiley and Sons, 2012.
Pukthuanthong-Le, Kuntara, Levich, Richard, and Thomas, Lee III. “Do Foreign Exchange Markets Still Trend?Journal of Portfolio Management 34, no. 1 2007: 114–18.
Reichsregierung. Material für ein Studium von Deutschlands Wirtschaft, Währung und Finanzen. Berlin: Reichsdruckerei, 1924.
Sarno, Lucio, and Mark P., Taylor. The Economics of Exchange Rates. Cambridge: Cambridge University Press, 2002.
Schabaker, Richard W. Technical Analysis and Stock Market Profits. Petersfield, UK: Harriman House Ltd, 1932.
Shleifer, Andrei, and Robert W., Vishny. “The Limits of Arbitrage.The Journal of Finance 52, no. 1 1997: 3555.
Sicsic, Pierre. “Was the Franc Poincaré Deliberately Undervalued?Explorations in Economic History 29, no. 1 1992: 6992.
Skidelsky, Robert. John Maynard Keynes: The Economist as Saviour, 1920–1937. London, UK: Macmillan, 1992.
Taylor, Mark, and Allen, Helen. “The Use of Technical Analysis in the Foreign Exchange Market.Journal of International Money and Finance 11, no. 3 1992: 304–14.
The Manchester Guardian, various dates.

Related content

Powered by UNSILO

If You're So Smart: John Maynard Keynes and Currency Speculation in the Interwar Years

  • Olivier Accominotti (a1) and David Chambers (a2)


Altmetric attention score

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed.