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Illusory Profitability of Technical Analysis in Emerging Foreign Exchange Markets

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  • Pei Kuang

    ()
    (University of Birmingham)

  • M. Schröder

    ()
    (Centre for European Economic Research)

  • Q. Wang

    ()
    (Bangor Business School)

Abstract

We conduct an extensive examination of profitability of technical analysis in ten emerging foreign exchange markets. Studying 25988 trading strategies for emerging foreign exchange markets, we find that best rules can sometimes generate an annually mean excess return of more than 30%. Based on standard tests, we find hundreds to thousands of seemingly significant profitable strategies. Almost all these profits vanish once the data snooping bias is taken into account. Overall, we show that the profitability of technical analysis is illusory.

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Bibliographic Info

Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 201302.

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Date of creation: 01 Aug 2013
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Handle: RePEc:san:cdmawp:1302

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Keywords: foreign exchange; technical trading; data mining; bootstrap test; emerging market;

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