Technical trading rules in the European Monetary System
AbstractUsing the genetic programming methodology developed in Neely, Weller and Dittmar (1997), we find trading rules that generate significant excess returns for three of four EMS exchange rates over the out-of-sample period 1986-1996. Permitting the rules to use information about the interest rate differential proved to be important. The reduction in volatility resulting from the imposition of a narrower band may reduce trading rule profitability. The currency for which there was least evidence of significant excess returns was the Dutch guilder, which was also the only currency that remained within a band of 2.25% throughout our sample period. Our results cannot be duplicated by the moving average or filter rules commonly used by technical analysts or by two trading rules designed specifically to exploit known features of target zone exchange rates. The observed excess returns cannot be explained as compensation for bearing systematic risk.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Money and Finance.
Volume (Year): 18 (1999)
Issue (Month): 3 ()
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Web page: http://www.elsevier.com/locate/inca/30443
Other versions of this item:
- Christopher Neely & Paul Weller, 1998. "Technical trading rules in the European Monetary System," Working Papers 1997-015, Federal Reserve Bank of St. Louis.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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