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Technical analysis and the profitability of U.S. foreign exchange intervention

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Author Info
Christopher J. Neely

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Abstract

This article reconciles an apparent contradiction found by recent research on U.S. intervention in foreign exchange markets. LeBaron (1996) and Szakmary and Mathur (1997) show that extrapolative technical trading rules trade against U.S. foreign exchange intervention and produce excess returns during intervention periods. Leahy (1995) shows that U.S. intervention itself is profitable over long periods of time. In other words, technical trades make excess returns when they take positions contrary to U.S. intervention - U.S. intervention itself is profitable, however. This article will first present recent research on these subjects. Then it will discuss how differing investment horizons and varying returns and position sizes may reconcile these facts.

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Publisher Info
Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (1998)
Issue (Month): Jul ()
Pages: 3-17
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Handle: RePEc:fip:fedlrv:y:1998:i:jul:p:3-17:n:v.80no.4

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Related research
Keywords: Foreign exchange - Law and legislation;

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(explanations, 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.)
  1. Zhaodan Huang & Stephen Neun, 2007. "The Effectiveness of Fed Intervention on the USD/DM Foreign Exchange Market," Global Economy Journal, International Trade and Finance Association, vol. 6(2), pages 3. [Downloadable!]
  2. Michael Frenkel & Christian Pierdzioch & Georg Stadtmann, 2003. "Modeling coordinated foreign exchange market interventions: The case of the Japanese and U.S. interventions in the 1990s," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 139(4), pages 709-729, December. [Downloadable!] (restricted)
  3. Christopher J. Neely & Paul A. Weller, 2007. "Central bank intervention with limited arbitrage," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 12(2), pages 249-260. [Downloadable!]
    Other versions:
  4. Christopher J. Neely, 2005. "An analysis of recent studies of the effect of foreign exchange intervention," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 685-718. [Downloadable!]
    Other versions:
  5. Jonathan Kearns & Roberto Rigobon, 2002. "Identifying the Efficacy of Central Bank Interventions: The Australian Case," NBER Working Papers 9062, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Jonathan Kearns & Roberto Rigobon, 2003. "Identifying the Efficacy of Central Bank Interventions: Evidence from Australia," RBA Research Discussion Papers rdp2003-04, Reserve Bank of Australia. [Downloadable!]
  7. Christopher J. Neely, 2006. "Identifying the effects of U.S. intervention on the levels of exchange rates," Working Papers 2005-031, Federal Reserve Bank of St. Louis. [Downloadable!]
  8. Christopher Neely & Paul Weller, 2000. "Technical analysis and central bank intervention," Working Papers 1997-002, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  9. Ana Maria Herrera & Pinar Ozbay, 2005. "A Dynamic Model of Central Bank Intervention," Working Papers 0501, Research and Monetary Policy Department, Central Bank of the Republic of Turkey. [Downloadable!]
  10. Suk-Joong Kim & Jeffrey Sheen, . "The Determinants of Foreign Exchange Intervention by Central Banks: Evidence from Australia," Working Papers 9919, University of Sydney, Department of Economics. [Downloadable!]
    Other versions:
  11. Christopher J. Neely, 2000. "The practice of central bank intervention: looking under the hood," Working Papers 2000-028, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  12. Christopher J. Neely, 2002. "The temporal pattern of trading rule returns and central bank intervention: intervention does not generate technical trading rule profits," Working Papers 2000-018, Federal Reserve Bank of St. Louis. [Downloadable!]
  13. Christopher J. Neely, 2003. "The Federal Reserve responds to crises: September 11th was not the first," Working Papers 2003-034, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  14. S.Kim & T. Kortian & J. Sheen, 1999. "Central Bank Intervention and Exchange Rate Volatility," Working Papers 9905, University of Sydney, Department of Economics. [Downloadable!]
  15. Yochanan Shachmurove & Uri BenZion & Paul Klein & Joseph Yagil, 2001. "A Moving Average Comparison of the Tel-Aviv 25 and S&P 500 Stock Indices," Penn CARESS Working Papers 4731f3394c43bebf4d3191c81, UCLA Department of Economics. [Downloadable!]
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