Momentum trading behavior in the FX market: Evidence from Japanese retail investors

This article explores behaviors of emerging players in the foreign exchange markets, retail investors in Japan. We find that they are momentum traders, implying that their actions could have a destabilizing effect in the markets. We also present the fact that the portfolio formation is mainly driven by past returns from spot rate changes, not interest rate differentials. Examining asymmetries in their behaviors shows that momentum tradings are relatively stronger particularly for sells after the global financial crisis occurred.