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Technical Analysis On Foreign Exchange: 1975 - 2004

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  • Fernando Rubio

    (FERNCAPITAL S.A.)

Abstract

The aim of this paper is to determine the potential profitability of technical analysis applied on the foreign exchange market. Eight simple rules of trading are tested in five markets. Only long positions are tracked and reported. When neither commissions nor indexation are included in the analysis, some investment strategies outperform the index. There is little evidence that these excess returns are compensation for bearing excessive risk. However, the most of these strategies require too many transactions and produces only marginal returns. In that sense, when commissions and indexation are introduced, it is concluded that only an investor with the ability to get very low or null commissions and taxes would benefit.

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File URL: http://128.118.178.162/eps/fin/papers/0405/0405033.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0405033.

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Length: 11 pages
Date of creation: 29 May 2004
Date of revision: 01 Jul 2004
Handle: RePEc:wpa:wuwpfi:0405033

Note: Type of Document - pdf; pages: 11
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Web page: http://128.118.178.162

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Keywords: Technical; analysis; forex; exchange; rates; efficiency; trading;

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References

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  1. Yin-Wong Cheung & Menzie D. Chinn, 2000. "Currency Traders and Exchange Rate Dynamics: A Survey of the U.S. Market," CESifo Working Paper Series 251, CESifo Group Munich.
  2. Christopher Neely & Paul Weller, 2000. "Technical analysis and central bank intervention," Working Papers 1997-002, Federal Reserve Bank of St. Louis.
  3. Tiffany Hutcheson, 2000. "Trading in the Australian Foreign Exchange Market," Working Paper Series 107, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  4. Ryan Sullivan & Allan Timmermann & Halbert White, 1999. "Data-Snooping, Technical Trading Rule Performance, and the Bootstrap," Journal of Finance, American Finance Association, vol. 54(5), pages 1647-1691, October.
  5. C.L. Osler & P.H. Kevin Chang, 1995. "Head and shoulders: not just a flaky pattern," Staff Reports 4, Federal Reserve Bank of New York.
  6. Cheung, Yin-Wong & Chinn, Menzie David & Marsh, Ian W, 1999. "How Do UK-Based Foreign Exchange Dealers Think Their Market Operates?," CEPR Discussion Papers 2230, C.E.P.R. Discussion Papers.
  7. Taylor, Mark P. & Allen, Helen, 1992. "The use of technical analysis in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 11(3), pages 304-314, June.
  8. Sweeney, Richard J, 1986. " Beating the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 41(1), pages 163-82, March.
  9. Blake LeBaron, 1994. "Technical Trading Rule Profitability and Foreign Exchange Intervention," International Finance 9411002, EconWPA.
  10. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
  11. Menkhoff, Lukas, 1997. "Examining the Use of Technical Currency Analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(4), pages 307-18, October.
  12. Christopher J. Neely, 1997. "Technical analysis in the foreign exchange market: a layman's guide," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 23-38.
  13. Bong-Chan, Kho, 1996. "Time-varying risk premia, volatility, and technical trading rule profits: Evidence from foreign currency futures markets," Journal of Financial Economics, Elsevier, vol. 41(2), pages 249-290, June.
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Cited by:
  1. Nguyen, James, 2004. "The Efficient Market Hypothesis: Is It Applicable to the Foreign Exchange Market?," Economics Working Papers wp04-20, School of Economics, University of Wollongong, NSW, Australia.

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