IDEAS home Printed from https://ideas.repec.org/a/taf/apeclt/v19y2012i5p493-503.html
   My bibliography  Save this article

Detecting trends in the foreign exchange markets

Author

Listed:
  • Adrián Fernández-P�rez
  • Fernando Fernández-Rodr�guez
  • Simón Sosvilla-Rivero

Abstract

We test for the existence of trends in exchange-rate series for 95 currencies against the US dollar. To that end, we make use of Taylor's (1980) price trend model that, instead of focusing on the mean reverting behaviour of exchange rates measured over a long horizon, concentrates on the short-term pattern of the price trend. Employing a maximum likelihood method and a genetic algorithm to estimate the model parameters, in 39 of the 95 cases considered we find evidence in favour of the presence of trends, the trends being more frequent in intermediate exchange-rate regimes.

Suggested Citation

  • Adrián Fernández-P�rez & Fernando Fernández-Rodr�guez & Simón Sosvilla-Rivero, 2012. "Detecting trends in the foreign exchange markets," Applied Economics Letters, Taylor & Francis Journals, vol. 19(5), pages 493-503, March.
    • Handle: RePEc:taf:apeclt:v:19:y:2012:i:5:p:493-503
    DOI: 10.1080/13504851.2011.587757
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/13504851.2011.587757
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/13504851.2011.587757?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Chang, P H Kevin & Osler, Carol L, 1999. "Methodical Madness: Technical Analysis and the Irrationality of Exchange-Rate Forecasts," Economic Journal, Royal Economic Society, vol. 109(458), pages 636-661, October.
    2. Neely, Christopher & Weller, Paul & Dittmar, Rob, 1997. "Is Technical Analysis in the Foreign Exchange Market Profitable? A Genetic Programming Approach," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(4), pages 405-426, December.
    3. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 1-48.
    4. Harris, Richard D.F. & Yilmaz, Fatih, 2009. "A momentum trading strategy based on the low frequency component of the exchange rate," Journal of Banking & Finance, Elsevier, vol. 33(9), pages 1575-1585, September.
    5. 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.
    6. 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.
    7. Dorsey, Robert E & Mayer, Walter J, 1995. "Genetic Algorithms for Estimation Problems with Multiple Optima, Nondifferentiability, and Other Irregular Features," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 53-66, January.
    8. Dewachter, Hans, 2001. "Can Markov switching models replicate chartist profits in the foreign exchange market?," Journal of International Money and Finance, Elsevier, vol. 20(1), pages 25-41, February.
    9. Sweeney, Richard J, 1986. "Beating the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 41(1), pages 163-182, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lukas Menkhoff & Mark P. Taylor, 2007. "The Obstinate Passion of Foreign Exchange Professionals: Technical Analysis," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 936-972, December.
    2. Adrián Fernández-P�rez & Fernando Fernández-Rodr�guez & Simón Sosvilla-Rivero, 2012. "Exploiting trends in the foreign exchange markets," Applied Economics Letters, Taylor & Francis Journals, vol. 19(6), pages 591-597, April.
    3. Schulmeister, Stephan, 2006. "The interaction between technical currency trading and exchange rate fluctuations," Finance Research Letters, Elsevier, vol. 3(3), pages 212-233, September.
    4. Stephan Schulmeister, 2009. "Technical Trading and Trends in the Dollar-Euro Exchange Rate," WIFO Studies, WIFO, number 37582.
    5. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2015. "Wave function method to forecast foreign currencies exchange rates at ultra high frequency electronic trading in foreign currencies exchange markets," MPRA Paper 67470, University Library of Munich, Germany.
    6. Stephan Schulmeister, 2000. "Technical Analysis and Exchange Rate Dynamics," WIFO Studies, WIFO, number 25857.
    7. Walid Omrane & Hervé Oppens, 2006. "The performance analysis of chart patterns: Monte Carlo simulation and evidence from the euro/dollar foreign exchange market," Empirical Economics, Springer, vol. 30(4), pages 947-971, January.
    8. BEN OMRANE, Walid & VAN OPPEN, Hervé, 2004. "The predictive success and profitability of chart patterns in the Euro/Dollar foreign exchange market," LIDAM Discussion Papers CORE 2004035, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    9. Neely, C. J. & Weller, P. A., 2003. "Intraday technical trading in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 22(2), pages 223-237, April.
    10. Dueker, Michael & Neely, Christopher J., 2007. "Can Markov switching models predict excess foreign exchange returns?," Journal of Banking & Finance, Elsevier, vol. 31(2), pages 279-296, February.
    11. Neely, Christopher J. & Weller, Paul A. & Ulrich, Joshua M., 2009. "The Adaptive Markets Hypothesis: Evidence from the Foreign Exchange Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(2), pages 467-488, April.
    12. Hsu, Po-Hsuan & Taylor, Mark P. & Wang, Zigan, 2016. "Technical trading: Is it still beating the foreign exchange market?," Journal of International Economics, Elsevier, vol. 102(C), pages 188-208.
    13. Friesen, Geoffrey C. & Weller, Paul A. & Dunham, Lee M., 2009. "Price trends and patterns in technical analysis: A theoretical and empirical examination," Journal of Banking & Finance, Elsevier, vol. 33(6), pages 1089-1100, June.
    14. Taylor, Mark & Hsu, Po-Hsuan, 2014. "Forty Years, Thirty Currencies and 21,000 Trading Rules: A Large-scale, Data-Snooping Robust Analysis of Technical Trading in t," CEPR Discussion Papers 10018, C.E.P.R. Discussion Papers.
    15. Levich, Richard M. & Potì, Valerio, 2015. "Predictability and ‘good deals’ in currency markets," International Journal of Forecasting, Elsevier, vol. 31(2), pages 454-472.
    16. Maxime Charlebois & Stephen Sapp, 2007. "Temporal Patterns in Foreign Exchange Returns and Options," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2‐3), pages 443-470, March.
    17. Bertrand Maillet & Thierry Michel, 2000. "Further insights on the puzzle of technical analysis profitability," The European Journal of Finance, Taylor & Francis Journals, vol. 6(2), pages 196-224.
    18. Neely, Christopher J., 2002. "The temporal pattern of trading rule returns and exchange rate intervention: intervention does not generate technical trading profits," Journal of International Economics, Elsevier, vol. 58(1), pages 211-232, October.
    19. Tweneboah Senzu, Emmanuel, 2020. "Modern currency exchange rate behaviour and proposed trend-like forecasting model," MPRA Paper 99933, University Library of Munich, Germany.
    20. Lee, Chun I & Gleason, Kimberly C. & Mathur, Ike, 2001. "Trading rule profits in Latin American currency spot rates," International Review of Financial Analysis, Elsevier, vol. 10(2), pages 135-156.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:apeclt:v:19:y:2012:i:5:p:493-503. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEL20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.