Is Technical Analysis in the Foreign Exchange Market Profitable by C.Neely

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Is technical analysis profitable in the currency market? a genetic programming approach

Christopher Neely ([email protected]), Paul A. Weller and Robert Dittmar

No. 1996-006, St. Louis Federal Reserve Bank Working Papers

Summary: Using genetic programming techniques to find technical trading rules, we found strong evidence of economically significant excessive returns out of the sample to those rules for each of the six exchange rates, during the period 1981-1995. Also, when the German dollar / mark rules are allowed to determine transactions in the other markets, there is a significant performance improvement in all cases except the German mark / yen. The beta versions calculated for returns according to various benchmark portfolios do not provide evidence that returns from these rules are compensation for taking systematic risk. Bootstrapping results in the German dollar / mark indicate that trade rules are detecting patterns in the data that are not captured by standard statistical models. Also

Key words: Programming (Mathematics); Currencies (look for similar items on EconPapers)
Date: 1997
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Published in Journal of Financial and Quantitative Analysis, December 1997