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Technical trading rule profitability and foreign exchange intervention

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  • LeBaron, Blake

Abstract

There is reliable evidence that simple rules used by traders have some predictive value over the future movement of foreign exchange prices. This paper will review some of this evidence and discuss the economic magnitude of this predictability. The profitability of these trading rules will then be analyzed in connection with central bank activity using intervention data from the Federal Reserve. The objective is to find to what extent foreign exchange predictability can be confined to periods of either high or low central bank activity. The results indicate that after removing periods in which the Federal Reserve is active, exchange rate predictability is dramatically reduced.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 49 (1999)
Issue (Month): 1 (October)
Pages: 125-143

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Handle: RePEc:eee:inecon:v:49:y:1999:i:1:p:125-143

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Web page: http://www.elsevier.com/locate/inca/505552

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  1. Michael P. Leahy, 1989. "The profitability of U.S. intervention," International Finance Discussion Papers 343, Board of Governors of the Federal Reserve System (U.S.).
  2. Engel, Charles, 1996. "The forward discount anomaly and the risk premium: A survey of recent evidence," Journal of Empirical Finance, Elsevier, vol. 3(2), pages 123-192, June.
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  4. Blake LeBaron, . "Technical Trading Rules and Regime Shifts in Foreign Exchange," Working papers _007, University of Wisconsin - Madison.
  5. Levich, Richard M. & Thomas, Lee III, 1993. "The significance of technical trading-rule profits in the foreign exchange market: a bootstrap approach," Journal of International Money and Finance, Elsevier, vol. 12(5), pages 451-474, October.
  6. Szpiro, George G., 1994. "Exchange rate speculation and chaos inducing intervention," Journal of Economic Behavior & Organization, Elsevier, vol. 24(3), pages 363-368, August.
  7. Kathryn Dominguez & Jeffrey A. Frankel, 1990. "Does Foreign Exchange Intervention Work?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 16.
  8. Christopher Neely & Paul Weller, 2000. "Technical analysis and central bank intervention," Working Papers 1997-002, Federal Reserve Bank of St. Louis.
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  13. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
  14. Brock, W. & Lakonishok, J. & Lebaron, B., 1991. "Simple Technical Trading Rules And The Stochastic Properties Of Stock Returns," Working papers 90-22, Wisconsin Madison - Social Systems.
  15. Jeffrey A. Frankel & Kenneth A. Froot, 1985. "Using Survey Data to Test Some Standard Propositions Regarding Exchange Rate Expectations," NBER Working Papers 1672, National Bureau of Economic Research, Inc.
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  17. Taylor, Stephen J, 1992. "Rewards Available to Currency Futures Speculators: Compensation for Risk or Evidence of Inefficient Pricing?," The Economic Record, The Economic Society of Australia, vol. 0(0), pages 105-16, Supplemen.
  18. Szakmary, Andrew C. & Mathur, Ike, 1997. "Central bank intervention and trading rule profits in foreign exchange markets," Journal of International Money and Finance, Elsevier, vol. 16(4), pages 513-535, August.
  19. Sweeney, Richard J, 1986. " Beating the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 41(1), pages 163-82, March.
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  21. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
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  23. Kathryn M. Dominguez, 1993. "Does Central Bank Intervention Increase the Volatility of Foreign Exchange Rates?," NBER Working Papers 4532, National Bureau of Economic Research, Inc.
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