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Illusory profitability of technical analysis in emerging foreign exchange markets

  • Kuang, P.
  • Schröder, M.
  • Wang, Q.

We conduct an extensive examination of the profitability of technical analysis in ten emerging foreign exchange markets. Studying 25,988 trading strategies for emerging foreign exchange markets, we find that the best rules can sometimes generate an annual mean excess return of more than 30%. Based on standard tests, we find hundreds to thousands of seemingly significant profitable strategies. However, almost all of 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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Article provided by Elsevier in its journal International Journal of Forecasting.

Volume (Year): 30 (2014)
Issue (Month): 2 ()
Pages: 192-205

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Handle: RePEc:eee:intfor:v:30:y:2014:i:2:p:192-205
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  19. Lo, Andrew W. (Andrew Wen-Chuan) & MacKinlay, Archie Craig, 1955-, 1989. "Data-snooping biases in tests of financial asset pricing models," Working papers 3020-89., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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