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Technical Analysis On Foreign Exchange: 1975 - 2004

  • Fernando Rubio

    (FERNCAPITAL S.A.)

The aim of this paper is to determine the potential profitability of technical analysis applied on the foreign exchange market. Eight simple rules of trading are tested in five markets. Only long positions are tracked and reported. When neither commissions nor indexation are included in the analysis, some investment strategies outperform the index. There is little evidence that these excess returns are compensation for bearing excessive risk. However, the most of these strategies require too many transactions and produces only marginal returns. In that sense, when commissions and indexation are introduced, it is concluded that only an investor with the ability to get very low or null commissions and taxes would benefit.

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File URL: http://128.118.178.162/eps/fin/papers/0405/0405033.pdf
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Paper provided by EconWPA in its series Finance with number 0405033.

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Length: 11 pages
Date of creation: 29 May 2004
Date of revision: 01 Jul 2004
Handle: RePEc:wpa:wuwpfi:0405033
Note: Type of Document - pdf; pages: 11
Contact details of provider: Web page: http://128.118.178.162

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  1. Ian Marsh & Menzie Chinn & Yin-Wong Cheung, 1999. "How do UK-Based Foreign Exchange Dealers Think Their Market Operates?," Working Papers wp99-21, Warwick Business School, Finance Group.
  2. Bong-Chan, Kho, 1996. "Time-varying risk premia, volatility, and technical trading rule profits: Evidence from foreign currency futures markets," Journal of Financial Economics, Elsevier, vol. 41(2), pages 249-290, June.
  3. Blake LeBaron, 1996. "Technical Trading Rule Profitability and Foreign Exchange Intervention," NBER Working Papers 5505, National Bureau of Economic Research, Inc.
  4. Neely, Christopher J. & Weller, Paul A., 2001. "Technical analysis and central bank intervention," Journal of International Money and Finance, Elsevier, vol. 20(7), pages 949-970, December.
  5. C.L. Osler & P.H. Kevin Chang, 1995. "Head and shoulders: not just a flaky pattern," Staff Reports 4, Federal Reserve Bank of New York.
  6. Sullivan, Ryan & Timmermann, Allan G & White, Halbert, 1998. "Data-Snooping, Technical Trading Rule Performance and the Bootstrap," CEPR Discussion Papers 1976, C.E.P.R. Discussion Papers.
  7. 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.
  8. Yin-Wong Cheung & Menzie D. Chinn, 2000. "Currency Traders and Exchange Rate Dynamics: A Survey of the U.S. Market," CESifo Working Paper Series 251, CESifo Group Munich.
  9. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
  10. Menkhoff, Lukas, 1997. "Examining the Use of Technical Currency Analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(4), pages 307-18, October.
  11. Sweeney, Richard J, 1986. " Beating the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 41(1), pages 163-82, March.
  12. Christopher J. Neely, 1997. "Technical analysis in the foreign exchange market: a layman's guide," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 23-38.
  13. Tiffany Hutcheson, 2000. "Trading in the Australian Foreign Exchange Market," Working Paper Series 107, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
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