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

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

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.

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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.

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