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Chilean Nominal Exchange Rate: Forecasting Based Upon Technical Analysis

  • Ana María Abarca
  • Felipe Alarcón
  • Pablo Pincheira
  • Jorge Selaive

: This work presents a review of the main indicators used in the technical analysis of the peso-dollar parity. We explain the interpretations carried out by technical analysts of these indicators and perform forecasting analysis of the Relative Strength Index (RSI) to predict exchange rate returns at daily frequency. The predictive exercises are done using both in-sample and out-of-sample techniques, and report a robust forecasting ability for horizons within 7 weeks.

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File URL: http://www.bcentral.cl/estudios/documentos-trabajo/pdf/dtbc425.pdf
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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 425.

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Date of creation: Aug 2007
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Handle: RePEc:chb:bcchwp:425
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  1. Pablo Pincheira, 2006. "Shrinkage Based Tests of the Martingale Difference Hypothesis," Working Papers Central Bank of Chile 376, Central Bank of Chile.
  2. Todd E. Clark, 2004. "Can out-of-sample forecast comparisons help prevent overfitting?," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(2), pages 115-139.
  3. Taylor, Mark P. & Allen, Helen, 1992. "The use of technical analysis in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 11(3), pages 304-314, June.
  4. Atsushi Inoue & Lutz Kilian, 2005. "In-Sample or Out-of-Sample Tests of Predictability: Which One Should We Use?," Econometric Reviews, Taylor & Francis Journals, vol. 23(4), pages 371-402.
  5. Kevin Cowan & David Rappoport & Jorge Selaive, 2007. "High Frequency Dynamics of the Exchange Rate in Chile," Working Papers Central Bank of Chile 433, Central Bank of Chile.
  6. Pesaran, M.H. & Timmermann, A., 1990. "A Simple, Non-Parametric Test Of Predictive Performance," Cambridge Working Papers in Economics 9021, Faculty of Economics, University of Cambridge.
  7. repec:att:wimass:9417 is not listed on IDEAS
  8. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-44, January.
  9. West, Kenneth D, 1996. "Asymptotic Inference about Predictive Ability," Econometrica, Econometric Society, vol. 64(5), pages 1067-84, September.
  10. Mark, Nelson C, 1995. "Exchange Rates and Fundamentals: Evidence on Long-Horizon Predictability," American Economic Review, American Economic Association, vol. 85(1), pages 201-18, March.
  11. Kenneth D. West & Whitney K. Newey, 1995. "Automatic Lag Selection in Covariance Matrix Estimation," NBER Technical Working Papers 0144, National Bureau of Economic Research, Inc.
  12. Lee, Chun I & Gleason, Kimberly C. & Mathur, Ike, 2001. "Trading rule profits in Latin American currency spot rates," International Review of Financial Analysis, Elsevier, vol. 10(2), pages 135-156.
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