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Further evidence on technical analysis and profitability of foreign exchange intervention

Author

Listed:
  • Simón Sosvilla-Rivero
  • Julián Andrada-Félix
  • Fernando Fernández-Rodríguez

Abstract

In this paper we present new evidence on the positive correlation Between returns from technical trading rules and periods of central bank intervention. To that end, we evaluate the profitability of a trading strategy based on nearest-neighbour (nonlinear) predictors, which may be viewed as a generalisation of graphical methods widely used in financial markets. We use daily data on the US Dollar/Deutsche mark and US Dollar/Japanese Yen covering the 1 February 1982-31 December 1996 period. Our results suggest that the exclusion of days of US intervention implies a substantial reduction in all profitability indicators (net returns, ideal profit measure, Sharpe ratio and directional forecast), being the reduction grater in the US Dollar-Deustchmark case than in the US Dollar-Japanese yen case.

Suggested Citation

  • Simón Sosvilla-Rivero & Julián Andrada-Félix & Fernando Fernández-Rodríguez, "undated". "Further evidence on technical analysis and profitability of foreign exchange intervention," Working Papers 99-01, FEDEA.
    • Handle: RePEc:fda:fdaddt:9901
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    References listed on IDEAS

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    1. LeBaron, Blake, 1999. "Technical trading rule profitability and foreign exchange intervention," Journal of International Economics, Elsevier, vol. 49(1), pages 125-143, October.
    2. William C. Clyde & Carol L. Osler, 1997. "Charting: Chaos theory in disguise?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 17(5), pages 489-514, August.
    3. Fernandez-Rodriguez, Fernando & Sosvilla-Rivero, Simon & Andrada-Felix, Julian, 1999. "Exchange-rate forecasts with simultaneous nearest-neighbour methods: evidence from the EMS," International Journal of Forecasting, Elsevier, vol. 15(4), pages 383-392, October.
    4. Levich, Richard M. & Thomas, Lee III, 1993. "The significance of technical trading-rule profits in the foreign exchange market: a bootstrap approach," Journal of International Money and Finance, Elsevier, vol. 12(5), pages 451-474, October.
    5. Fernandez-Rodriguez, Fernando & Sosvilla-Rivero, Simon, 1998. "Testing nonlinear forecastability in time series: Theory and evidence from the EMS," Economics Letters, Elsevier, vol. 59(1), pages 49-63, April.
    6. Mr. Mark P. Taylor, 1991. "Intervention, Interest Rates, and Charts: Three Essays in International Finance," IMF Working Papers 1991/106, International Monetary Fund.
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    Citations

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    Cited by:

    1. Fernandez-Rodriguez, Fernando & Gonzalez-Martel, Christian & Sosvilla-Rivero, Simon, 2000. "On the profitability of technical trading rules based on artificial neural networks:: Evidence from the Madrid stock market," Economics Letters, Elsevier, vol. 69(1), pages 89-94, October.
    2. Fernando Fernández-Rodríguez & Simón Sosvilla-Rivero & Julián Andrada-Félix, "undated". "Technical Analysis in Foreign Exchange Markets: Linear Versus Nonlinear Trading Rules," Working Papers on International Economics and Finance 00-02, FEDEA.

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    More about this item

    Keywords

    Central bank intervention; Technical trading rules; Exchange rates;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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