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Trading Rule Profitability and Central Bank Interventions in the Dollar-Deutsch mark Market / Der Zusammenhang zwischen der Profitabilität einer technischen Handelsstrategie und Zentralbankinterventionen im D-Mark/US-Dollar-Markt

Author

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  • Frenkel Michael

    (Department of Economics, WHU Koblenz, Burgplatz 2, D-56179 Vallendar, Germany)

  • Stadtmann Georg

    (Department of Economics, WHU Koblenz, Burgplatz 2, D-56179 Vallendar, Tel.: ++49/+2 61/65 09-2 73, Fax: ++49/+2 61/65 09-2 79, Germany)

Abstract

The paper examines the relationship between central bank interventions in the dollar-deutschmark market and the profitability of technical trading for the period 1979-1992. While previous work on this topic focused on the interventions of the Fed, we include data on Bundesbank interventions and show that there were several similarities. Our analysis yields the result that eliminating days of Fed and Bundesbank interventions causes a simple moving average trading rule to become unprofitable. In addition, we study the dynamics of intra-day exchange rates following and preceding interventions and provide a VAR analysis on the relationship between interventions and the change in the exchange rate. The results suggest that interventions did not cause the high profits of technical trading on intervention days frequently found in other studies.

Suggested Citation

  • Frenkel Michael & Stadtmann Georg, 2004. "Trading Rule Profitability and Central Bank Interventions in the Dollar-Deutsch mark Market / Der Zusammenhang zwischen der Profitabilität einer technischen Handelsstrategie und Zentralbankinterventio," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 224(6), pages 653-672, December.
    • Handle: RePEc:jns:jbstat:v:224:y:2004:i:6:p:653-672
    DOI: 10.1515/jbnst-2004-0603
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    References listed on IDEAS

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    Cited by:

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    2. Lazăr, Dorina & Todea, Alexandru & Filip, Diana, 2012. "Martingale difference hypothesis and financial crisis: Empirical evidence from European emerging foreign exchange markets," Economic Systems, Elsevier, vol. 36(3), pages 338-350.

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