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What do we know about the popularity of technical analysis in foreign exchange markets? A skewness preference perspective

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  • Jin, Xiaoye

Abstract

We propose a risk-preference based analytical framework and through which to provide an empirical explanation for the widespread use and acceptance of technical analysis in the foreign exchange markets even if there is no substantial evidence to support its profitability. We also formally demonstrate the relationship between the investor’s skewness preference and the skewness feature of technical analysis and thus provide a detailed explanation for the investor’s desire for positive skewness through a simple linear regression analysis, which complements and extends most recent risk-preference studies on the popularity of technical analysis.

Suggested Citation

  • Jin, Xiaoye, 2021. "What do we know about the popularity of technical analysis in foreign exchange markets? A skewness preference perspective," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:intfin:v:71:y:2021:i:c:s1042443120301657
    DOI: 10.1016/j.intfin.2020.101281
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    Cited by:

    1. Jin, Xiaoye, 2022. "Testing technical trading strategies on China's equity ETFs: A skewness perspective," Emerging Markets Review, Elsevier, vol. 51(PA).

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    More about this item

    Keywords

    Foreign exchange markets; Technical analysis; Skewness preference; Cumulative prospect theory; Behavioral economics;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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