Technical Analysis In Foreign Exchange Markets: Linear Versus Nonlinear Trading Rules
AbstractIn this paper we assess the economic significance of the nonlinear predictability of EMS exchange rates. To that end, and using daily data for nine EMS currencies covering the 1st January 1978- 31st December 1994 period, we consider nearest-neighbour nonlinear predictors, transforming their forecasts into a technical trading rule, whose profitability has been evaluated against the traditional (linear) moving average trading rules, considering both interest rates and transaction costs. Our results suggest that in most of the cases a trading rule based on a nonlinear predictor outperform the moving average, both in terms of returns and in terms of the ideal profit and the Sharpe ratio profitability indicators.
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Bibliographic InfoPaper provided by Asociación Española de Economía y Finanzas Internacionales in its series Working Papers with number 00-02.
Length: 21 pages
Date of creation: Sep 2000
Date of revision:
Nearest-neighbour prediction methods; Technical trading rules; Exchange rates;
Other versions of this item:
- Fernando Fernández-Rodríguez & Simón Sosvilla-Rivero & Julián Andrada-Félix, . "Technical Analysis in Foreign Exchange Markets: Linear Versus Nonlinear Trading Rules," Working Papers on International Economics and Finance 00-02, FEDEA.
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- F31 - International Economics - - International Finance - - - Foreign Exchange
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