Technical trading: Is it still beating the foreign exchange market?

Po Hsuan Hsu; Mark P. Taylor; Zigan Wang

doi:10.1016/j.jinteco.2016.03.012

Technical trading: Is it still beating the foreign exchange market?

Po Hsuan Hsu
, Mark P. Taylor
, Zigan Wang

Research output: Contribution to journal › Article › peer-review

75 Scopus citations

Abstract

We carry out a large-scale investigation of technical trading rules in the foreign exchange market, using daily data over 45 years for 30 developed and emerging market currencies. Employing a stepwise test to counter data-snooping bias and examining over 21,000 technical rules, we find evidence of substantial predictability and excess profitability in both developed and emerging currencies, measured against a variety of performance metrics. We cross-validate our results using out-of-sample analysis. We find time series and cross-sectional variation in subperiods and cultural and/or geographic groups, respectively, suggesting that temporarily not-fully-rational behavior and market immaturity generate technical predictability and potential excess profitability.

Original language	English
Pages (from-to)	188-208
Number of pages	21
Journal	Journal of International Economics
Volume	102
DOIs	https://doi.org/10.1016/j.jinteco.2016.03.012
State	Published - Sep 1 2016

Keywords

Data-snooping bias
Foreign exchange
Technical analysis
Trading rules

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10.1016/j.jinteco.2016.03.012

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title = "Technical trading: Is it still beating the foreign exchange market?",

abstract = "We carry out a large-scale investigation of technical trading rules in the foreign exchange market, using daily data over 45 years for 30 developed and emerging market currencies. Employing a stepwise test to counter data-snooping bias and examining over 21,000 technical rules, we find evidence of substantial predictability and excess profitability in both developed and emerging currencies, measured against a variety of performance metrics. We cross-validate our results using out-of-sample analysis. We find time series and cross-sectional variation in subperiods and cultural and/or geographic groups, respectively, suggesting that temporarily not-fully-rational behavior and market immaturity generate technical predictability and potential excess profitability.",

keywords = "Data-snooping bias, Foreign exchange, Technical analysis, Trading rules",

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AU - Taylor, Mark P.

AU - Wang, Zigan

PY - 2016/9/1

Y1 - 2016/9/1

N2 - We carry out a large-scale investigation of technical trading rules in the foreign exchange market, using daily data over 45 years for 30 developed and emerging market currencies. Employing a stepwise test to counter data-snooping bias and examining over 21,000 technical rules, we find evidence of substantial predictability and excess profitability in both developed and emerging currencies, measured against a variety of performance metrics. We cross-validate our results using out-of-sample analysis. We find time series and cross-sectional variation in subperiods and cultural and/or geographic groups, respectively, suggesting that temporarily not-fully-rational behavior and market immaturity generate technical predictability and potential excess profitability.

AB - We carry out a large-scale investigation of technical trading rules in the foreign exchange market, using daily data over 45 years for 30 developed and emerging market currencies. Employing a stepwise test to counter data-snooping bias and examining over 21,000 technical rules, we find evidence of substantial predictability and excess profitability in both developed and emerging currencies, measured against a variety of performance metrics. We cross-validate our results using out-of-sample analysis. We find time series and cross-sectional variation in subperiods and cultural and/or geographic groups, respectively, suggesting that temporarily not-fully-rational behavior and market immaturity generate technical predictability and potential excess profitability.

KW - Data-snooping bias

KW - Foreign exchange

KW - Technical analysis

KW - Trading rules

UR - https://www.scopus.com/pages/publications/84982103492

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DO - 10.1016/j.jinteco.2016.03.012

M3 - Article

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VL - 102

SP - 188

EP - 208

JO - Journal of International Economics

JF - Journal of International Economics

ER -

Technical trading: Is it still beating the foreign exchange market?

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Keywords

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