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Is Technical Analysis in the Foreign Exchange Market Profitable? A Genetic Programming Approach

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  • Neely, Christopher
  • Weller, Paul
  • Dittmar, Rob

Abstract

We use genetic programming techniques to identify optimal technical trading rules. We find strong evidence of economically significant out-of-sample excess returns to the rules for each of six exchange rates ($/DM, $/Yen, $/SF, $/£, DM/Yen, SF/£), over the period 1981–95. Some of the rules have a structure similar to those used by technical analysts. Betas calculated for the returns according to various benchmark portfolios provide no evidence that the returns to these rules are compensation for bearing systematic risk. ‘Bootstrapping’ results for the $/DM indicate that the trading rules are detecting patterns in the data that are not captured by standard statistical models.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.

Volume (Year): 32 (1997)
Issue (Month): 04 (December)
Pages: 405-426
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:cup:jfinqa:v:32:y:1997:i:04:p:405-426_00

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