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Market inefficiency identified by both single and multiple currency trends

Listed author(s):
  • Tokár, T.
  • Horváth, D.
Registered author(s):

    Many studies have shown that there are good reasons to claim very low predictability of currency returns; nevertheless, the deviations from true randomness exist which have potential predictive and prognostic power [J. James, Simple trend-following strategies in currency trading, Quantitative finance 3 (2003) C75–C77]. We analyze the local trends which are of the main focus of the technical analysis. In this article we introduced various statistical quantities examining role of single temporal discretized trend or multitude of grouped trends corresponding to different time delays. Our specific analysis based predominantly on Euro–dollar currency pair data at the one minute frequency suggests the importance of cumulative nonrandom effect of trends on the potential forecasting performance.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378437112005420
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    Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

    Volume (Year): 391 (2012)
    Issue (Month): 22 ()
    Pages: 5620-5627

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    Handle: RePEc:eee:phsmap:v:391:y:2012:i:22:p:5620-5627
    DOI: 10.1016/j.physa.2012.06.038
    Contact details of provider: Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

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    1. Zunino, Luciano & Zanin, Massimiliano & Tabak, Benjamin M. & Pérez, Darío G. & Rosso, Osvaldo A., 2009. "Forbidden patterns, permutation entropy and stock market inefficiency," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(14), pages 2854-2864.
    2. Oh, Gabjin & Kim, Seunghwan & Eom, Cheoljun, 2007. "Market efficiency in foreign exchange markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 382(1), pages 209-212.
    3. Armin Shmilovici & Yoav Kahiri & Irad Ben-Gal & Shmuel Hauser, 2009. "Measuring the Efficiency of the Intraday Forex Market with a Universal Data Compression Algorithm," Computational Economics, Springer;Society for Computational Economics, vol. 33(2), pages 131-154, March.
    4. Sansone, Alessandro & Garofalo, Giuseppe, 2007. "Asset price dynamics in a financial market with heterogeneous trading strategies and time delays," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 382(1), pages 247-257.
    5. Fung, William & Hsieh, David A, 2001. "The Risk in Hedge Fund Strategies: Theory and Evidence from Trend Followers," Review of Financial Studies, Society for Financial Studies, vol. 14(2), pages 313-341.
    6. Bigdeli, N. & Afshar, K., 2009. "Characterization of Iran electricity market indices with pay-as-bid payment mechanism," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(8), pages 1577-1592.
    7. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    8. Stevenson, Richard A & Bear, Robert M, 1970. "Commodity Futures: Trends or Random Walks?," Journal of Finance, American Finance Association, vol. 25(1), pages 65-81, March.
    9. Jessica James, 2003. "Simple trend-following strategies in currency trading," Quantitative Finance, Taylor & Francis Journals, vol. 3(4), pages 75-77.
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