Is technical analysis in the foreign exchange market profitable? a genetic programming approach
Using genetic programming techniques to find technical trading rules, we find strong evidence of economically significant out-of-sample excess returns to those rules for each of six exchange rates, over the period 1981-1995. Further, when the dollar/deutschemark rules are allowed to determine trades in the other markets, there is a significant improvement in performance in all cases, except for the deutschemark/yen. Betas calculated for the returns according to various benchmark portfolios provide no evidence that the returns to these rules are compensation for bearing systematic risk. Bootstrapping results on the dollar/deutschemark indicate that the trading rules are detecting patterns in the data that are not captured by standard statistical models.
|Date of creation:||1997|
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|Publication status:||Published in Journal of Financial and Quantitative Analysis, December 1997|
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