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Is technical analysis in the foreign exchange market profitable? a genetic programming approach

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Author Info

  • Christopher J. Neely
  • Paul A. Weller
  • Robert Dittmar

Abstract

Using genetic programming techniques to find technical trading rules, we find strong evidence of economically significant out-of-sample excess returns to those rules for each of six exchange rates, over the period 1981-1995. Further, when the dollar/deutschemark rules are allowed to determine trades in the other markets, there is a significant improvement in performance in all cases, except for the deutschemark/yen. Betas calculated for the returns according to various benchmark portfolios provide no evidence that the returns to these rules are compensation for bearing systematic risk. Bootstrapping results on the dollar/deutschemark indicate that the trading rules are detecting patterns in the data that are not captured by standard statistical models.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 1996-006.

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Date of creation: 1997
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Publication status: Published in Journal of Financial and Quantitative Analysis, December 1997
Handle: RePEc:fip:fedlwp:1996-006

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Keywords: Programming (Mathematics) ; Foreign exchange;

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