Success and Failure of Technical Trading Strategies in the Cocoa Futures Market
AbstractA large set of 5350 trend following technica! trading rules is applied to LIFFEand CSCE cocoa futures prices, and tothe Pound-Dollar exchange rate, in the period 1983:1-1997:6. We find that 72% ofthe trading rules generatespositive profits, even when correcting for transaction and borrowing costs, whenapplied to the LIFFE cocoa futuresprices. Moreover, a large set of trading rules exhibits statisticallysignificant forecasting power of the LIFFE cocoafutures series. On the other hand the same set of strategies performs poor onthe CSCE cocoa futures prices, withonly 18% generating positive net profits and hardly any statisticallysignificant forecasting power. The largedifference in the performance of technical trading may be attributed to acombination of the demand/supplymechanism in the cocoa market and an accident al influence of the Pound- Dollarexchange rate, reinforcing trendsin the LIFFE cocoa futures but weakening trends in the CSCE cocoa futures. Ourcase-study suggests a connectionbetween the succes or failure of technical trading and the relative magnitudesof trend and volatility of theunderlying series.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 01-016/1.
Date of creation: 06 Feb 2001
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Web page: http://www.tinbergen.nl
technical trading strategies; commodity futures; exchange rate;
Other versions of this item:
- Gerwin Griffioen & Peter Boswijk & Cars Hommes, 2001. "Success and Failure of Technical Trading Strategies in the Cocoa Futures Market," CeNDEF Workshop Papers, January 2001 4A.4, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Boswijk, H.P. & Griffioen, G.A.W. & Hommes, C.H., 2000. "Succes and Failure of Technical Trading Strategies in the Cocoa Futures Markets," CeNDEF Working Papers 00-06, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Boswijk, H.P., Griffioen, G.A.W., Hommes, C.H., 2001. "Succes and Failure of Technical Trading Strategies in the Cocoa Futures Market," Computing in Economics and Finance 2001 120, Society for Computational Economics.
- NEP-ALL-2001-05-02 (All new papers)
- NEP-FIN-2001-05-02 (Finance)
- NEP-FMK-2001-05-02 (Financial Markets)
- NEP-IFN-2001-05-02 (International Finance)
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- Carl Chiarella & Xue-Zhong He & Cars Hommes, 2004.
"A Dynamic Analysis of Moving Average Rules,"
Research Paper Series
133, Quantitative Finance Research Centre, University of Technology, Sydney.
- Cars Hommes & Carl Chiarella & Xue-Zhong He, 2004. "A Dynamical Analysis of Moving Average Rules," Computing in Economics and Finance 2004 238, Society for Computational Economics.
- Chiarella, C. & He, X.-Z. & Hommes, C.H., 2004. "A Dynamic Analysis of Moving Average Rules," CeNDEF Working Papers 04-14, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Carl Chiarella & Tony He & Cars H. Hommes, 2005. "A Dynamic Analysis of Moving Average Rules," Tinbergen Institute Discussion Papers 05-057/1, Tinbergen Institute.
- Colin Fyfe & John Paul Marney & Heather Tarbert, 2005. "Risk adjusted returns from technical trading: a genetic programming approach," Applied Financial Economics, Taylor & Francis Journals, vol. 15(15), pages 1073-1077.
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