It turns out that John Maynard Keynes, the father of modern macroeconomics, was a bit of a speculator. A September 2014 study by academics at Cambridge and the London School of Economics found that Keynes was an avid, but mediocre, currency trader.

Olivier Accominotti of the London School of Economics and David Chambers of Cambridge University reviewed the trading record of John Maynard Keynes during the 1920s and 30s, and found that while he employed sophisticated macroeconomic techniques in his trading strategies, his results were less than spectacular.

John Maynard Keynes used sophisticated trading strategies

The research indicates that Keynes used his knowledge of macroeconomics and the international financial and political scene of the time to speculate in foreign exchange markets. The researchers note his trading strategy involved a sophisticated analysis of macroeconomic fundamentals compared to the simple rules-based strategies characteristic of modern currency markets (the carry trade and momentum).

John Maynard Keynes Currency Trading

Keynes’s currency trading strategy included an analysis of macroeconomic fundamentals such as expected changes in official interest rates, the inflation outlook, and the level of European reparations and international capital flows. The study confirmed that his currency trade positions were consistent with the views he expressed in newspapers and other publications at the time.

Conclusion of the study

John Maynard Keynes Currency Trading

John Maynard Keynes Currency Trading

It turns out, however, that Keynes’s risk-adjusted returns were below those of UK stocks and bonds using the simple carry and momentum strategies. He did show an ability to forecast the direction currencies would move, but Keynes often had poor timing with his trades. The authors note that: “Overall, our findings indicate that Keynes’s economic expertise was of little benefit for speculating in currencies.”

Keynes currency trading strategy did yield positive average returns over the period he traded, but the returns were very volatile. That means he underperformed overall when you benchmark his risk-adjusted performance against stocks and bonds and then against the simple carry and momentum strategies popular among modern traders. Both of these strategies achieved Sharpe ratios better than Keynes’ discretionary, fundamentals-based strategy during the 1920s and 1930s. Therefore, an investor following these simple strategies would have achieved higher returns while exposing herself to much less risk than using Keynes macroeconomics-based trading strategy.