Is Technical Analysis in the Foreign Exchange Market Profitable? A Genetic Programming Approach

Neely, Christopher J.; Weller, Paul; Dittmar, Rob

doi:10.2307/2331231

Cited by 517 publications

(289 citation statements)

References 24 publications

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“…We consider the following papers: Sweeney (1986), Levich and Thomas (1993), Taylor (1994), Neely, Weller and Dittmar (1997) (henceforth NWD) and Dueker and Neely (2007). The first three papers selected a small number of rules commonly used by technical traders.…”

Section: Introductionmentioning

confidence: 99%

The Adaptive Markets Hypothesis: Evidence from the Foreign Exchange Market

Neely¹,

Weller²,

Ulrich

2009

J. Financ. Quant. Anal.

209

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We analyze the intertemporal stability of excess returns to technical trading rules in the foreign exchange market by conducting true, out-of-sample tests on previously studied rules. The excess returns of the 1970s and 1980s were genuine and not just the result of data mining. But these profit opportunities had disappeared by the early 1990s for filter and moving average rules. Returns to less-studied rules also have declined but have probably not completely disappeared. High volatility prevents precise estimation of mean returns. These regularities are consistent with the Adaptive Markets Hypothesis (Lo, 2004), but not with the Efficient Markets Hypothesis.JEL Codes: F31, G14, G11

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Section: Introductionmentioning

confidence: 99%

The Adaptive Markets Hypothesis: Evidence from the Foreign Exchange Market

Neely¹,

Weller²,

Ulrich

2009

J. Financ. Quant. Anal.

209

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“…In contrast, contemporary research -starting from Brock et al (1992), who demonstrate that a relatively simple set of technical trading rules possesses significant forecast power for changes in the Dow Jones Industrial Average (DJIA) over a long sample periodindicates that under certain conditions technical trading analysis can generate significant abnormal returns. As a result, Neely et al (1997) represents the contemporary (and contrarian) view, where the economic significance of the technical trading strategies challenges the broadly held contention that financial markets are (highly) efficient. In addition to our approach being in line with current market practice, two main theoretical arguments have also been put forward in order to explain the usefulness of technical analysis.…”

Section: Technical Analysis and Trading Strategiesmentioning

confidence: 99%

Economic significance of market timing rules in the Forward Freight Agreement markets

Nomikos

Doctor

2013

Transportation Research Part E: Logistics and Transportation Re

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This is the accepted version of the paper.This version of the publication may differ from the final published version. Permanent repository link AbstractQuantitative market timing strategies have been traditionally tested in liquid commodity and financial futures, often with mixed results with respect to their performance. We extend this methodology to a nonstorable commodity, freight, where hitherto this analysis has not been carried out. The freight futures market is mature and increasingly liquid, making it a good case for diversification and trading opportunities. We carry out a comprehensive study of quantitative trading strategies in the FFA (Forward Freight Agreements) market on a wide variety of contracts and maturities with a number of trading rules. We find that in spite of robustness checks, trading rules do outperform the buy-and-hold benchmark in general. We also explore the possibility that illiquidity and a small sample size may impact the results of the tests and therefore offer an intuitive approach to mitigate their effects. A procedure that augments the Hansen (2005) SPA (Superior Predictive Ability) methodology and allows us to use it for smaller sample sizes with increased confidence is also proposed.

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“…Two types of estimations are presented. The full line represents the estimation results from our model and the dashed line from a nonparametric approach 8 . The histogram of the trading signal is shown in the background.…”

Section: 2 Least Squares Prediction Modelsmentioning

confidence: 99%

The cost of technical trading rules in the Forex market: A utility-based evaluation

Dewachter

Lyrio

2006

Journal of International Money and Finance

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We compute the opportunity cost for rational risk averse agents of using technical trading rules in the foreign exchange rate market. Our purpose is to investigate whether these rules can be interpreted as near-rational investment strategies for rational investors. We analyze four di.erent exchange rates and find that the opportunity cost of using chartist rules tends to be prohibitively high. We also present a method to decompose this opportunity cost into parts related to investor's irrationality and misallocation of wealth. The results show that irrationality of chartist beliefs is an important component of the total opportunity cost of using technical trading rules. 5001-6182 Business AbstractWe compute the opportunity cost for rational risk averse agents of using technical trading rules in the foreign exchange rate market. Our purpose is to investigate whether these rules can be interpreted as near-rational investment strategies for rational investors. We analyze four different exchange rates and find that the opportunity cost of using chartist rules tends to be prohibitively high. We also present a method to decompose this opportunity cost into parts related to investor's irrationality and misallocation of wealth. The results show that irrationality of chartist beliefs is an important component of the total opportunity cost of using technical trading rules.

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Is Technical Analysis in the Foreign Exchange Market Profitable? A Genetic Programming Approach

Cited by 517 publications

References 24 publications

The Adaptive Markets Hypothesis: Evidence from the Foreign Exchange Market

The Adaptive Markets Hypothesis: Evidence from the Foreign Exchange Market

Economic significance of market timing rules in the Forward Freight Agreement markets

The cost of technical trading rules in the Forex market: A utility-based evaluation

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