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Technical Trading Rule Profitability and Foreign Exchange Intervention

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  • Blake LeBaron

    (University of Wisconsin)

Abstract

There is reliable evidence that simple rules used by traders have some predictive value over the future movement of foreign exchange prices. This paper will review some of this evidence and discuss the economic magnitude of this predictability. The profitability of these trading rules will then be analyzed in connection with central bank activity using intervention data from the Federal Reserve. The objective is to find to what extent foreign exchange predictability can be confined to periods of either high or low central bank activity. The results indicate that after removing periods in which the Federal Reserve is active, exchange rate predictability is dramatically reduced.

Suggested Citation

  • Blake LeBaron, 1994. "Technical Trading Rule Profitability and Foreign Exchange Intervention," International Finance 9411002, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpif:9411002
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    References listed on IDEAS

    as
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    7. Bilson, John F. O. & Hsieh, David A., 1987. "The profitability of currency speculation," International Journal of Forecasting, Elsevier, vol. 3(1), pages 115-130.
    8. Blake LeBaron, "undated". "Technical Trading Rules and Regime Shifts in Foreign Exchange," Working papers _007, University of Wisconsin - Madison.
    9. Michael P. Leahy, 1989. "The profitability of U.S. intervention," International Finance Discussion Papers 343, Board of Governors of the Federal Reserve System (U.S.).
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    13. Kathryn Dominguez & Jeffrey A. Frankel, 1990. "Does Foreign Exchange Intervention Work?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 16.
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    19. Taylor, Dean, 1982. "Official Intervention in the Foreign Exchange Market, or, Bet against the Central Bank," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 356-368, April.
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    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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