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Market inefficiency identified by both single and multiple currency trends

Author

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  • Tokár, T.
  • Horváth, D.

Abstract

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.

Suggested Citation

  • Tokár, T. & Horváth, D., 2012. "Market inefficiency identified by both single and multiple currency trends," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(22), pages 5620-5627.
  • Handle: RePEc:eee:phsmap:v:391:y:2012:i:22:p:5620-5627
    DOI: 10.1016/j.physa.2012.06.038
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    References listed on IDEAS

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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.
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    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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