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Technical trading: Is it still beating the foreign exchange market?

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  • Hsu, Po-Hsuan
  • Taylor, Mark P.
  • Wang, Zigan

Abstract

We carry out a large-scale investigation of technical trading rules in the foreign exchange market, using daily data over 45years for 30 developed and emerging market currencies. Employing a stepwise test to counter data-snooping bias and examining over 21,000 technical rules, we find evidence of substantial predictability and excess profitability in both developed and emerging currencies, measured against a variety of performance metrics. We cross-validate our results using out-of-sample analysis. We find time series and cross-sectional variation in subperiods and cultural and/or geographic groups, respectively, suggesting that temporarily not-fully-rational behavior and market immaturity generate technical predictability and potential excess profitability.

Suggested Citation

  • Hsu, Po-Hsuan & Taylor, Mark P. & Wang, Zigan, 2016. "Technical trading: Is it still beating the foreign exchange market?," Journal of International Economics, Elsevier, vol. 102(C), pages 188-208.
  • Handle: RePEc:eee:inecon:v:102:y:2016:i:c:p:188-208
    DOI: 10.1016/j.jinteco.2016.03.012
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    More about this item

    Keywords

    Foreign exchange; Technical analysis; Trading rules; Data-snooping bias;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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