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Further evidence on technical trade profitability and foreign exchange intervention

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  • Simon Sosvilla-Rivero
  • Julian Andrada-Felix
  • Fernando Fernandez-Rodriguez

Abstract

New evidence is presented on the positive correlation between returns from technical trading rules and periods of central bank intervention. To that end, the profitability of a trading strategy based on nearest-neighbour (nonlinear) predictors is evaluated, which may be viewed as a generalization of graphical methods widely used in financial markets. Daily data on the US dollar/Deutschmark and US dollar/Japanese Yen covering the 1 February 1982-31 December 1996 period are used. The results suggest that the exclusion of days of US intervention implies a substantial reduction in all profitability indicators (net returns, ideal profit measure, Sharpe ratio and directional forecast), being the reduction grater in the US dollar-Deutschmark case than in the US dollar-Japanese yen case.

Suggested Citation

  • Simon Sosvilla-Rivero & Julian Andrada-Felix & Fernando Fernandez-Rodriguez, 2002. "Further evidence on technical trade profitability and foreign exchange intervention," Applied Economics Letters, Taylor & Francis Journals, vol. 9(12), pages 827-832.
    • Handle: RePEc:taf:apeclt:v:9:y:2002:i:12:p:827-832
    DOI: 10.1080/13504850210137802
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    References listed on IDEAS

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    1. LeBaron, Blake, 1999. "Technical trading rule profitability and foreign exchange intervention," Journal of International Economics, Elsevier, vol. 49(1), pages 125-143, October.
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    6. Fernandez-Rodriguez, Fernando & Sosvilla-Rivero, Simon & Andrada-Felix, Julian, 1999. "Exchange-rate forecasts with simultaneous nearest-neighbour methods: evidence from the EMS," International Journal of Forecasting, Elsevier, vol. 15(4), pages 383-392, October.
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    Cited by:

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    2. Yung-Ho Chang & Massoud Metghalchi & Chia-Chung Chan, 2006. "Technical trading strategies and cross-national information linkage: the case of Taiwan stock market," Applied Financial Economics, Taylor & Francis Journals, vol. 16(10), pages 731-743.
    3. Manahov, Viktor & Hudson, Robert & Gebka, Bartosz, 2014. "Does high frequency trading affect technical analysis and market efficiency? And if so, how?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 28(C), pages 131-157.
    4. Ślepaczuk Robert & Sakowski Paweł & Zakrzewski Grzegorz, 2018. "Investment Strategies that Beat the Market. What Can We Squeeze from the Market?," Financial Internet Quarterly (formerly e-Finanse), Sciendo, vol. 14(4), pages 36-55, December.
    5. Elaine Y. L. Loh, 2007. "An alternative test for weak form efficiency based on technical analysis," Applied Financial Economics, Taylor & Francis Journals, vol. 17(12), pages 1003-1012.
    6. Cheol‐Ho Park & Scott H. Irwin, 2007. "What Do We Know About The Profitability Of Technical Analysis?," Journal of Economic Surveys, Wiley Blackwell, vol. 21(4), pages 786-826, September.
    7. Robert Ślepaczuk & Grzegorz Zakrzewski & Paweł Sakowski, 2012. "Investment strategies beating the market. What can we squeeze from the market?," Working Papers 2012-04, Faculty of Economic Sciences, University of Warsaw.

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