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Charts as signals in Markov switching world

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  • Hans Dewachter

Abstract

This note evaluates the signal performance of charts under the maintained assumption that the DGP is a standard Markov switching model. It is found that, within this framework, charts contain valuable information with respect to the current state of the latent process. Hence, this note provides a (statistical) rationale for the reported profitability of chartists rules in terms of an underlying Markov switching model as the DGP.

Suggested Citation

  • Hans Dewachter, 1996. "Charts as signals in Markov switching world," Applied Economics Letters, Taylor & Francis Journals, vol. 3(6), pages 405-407.
    • Handle: RePEc:taf:apeclt:v:3:y:1996:i:6:p:405-407
    DOI: 10.1080/135048596356320
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    References listed on IDEAS

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    1. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    2. Engel, Charles, 1994. "Can the Markov switching model forecast exchange rates?," Journal of International Economics, Elsevier, vol. 36(1-2), pages 151-165, February.
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