NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Significance of Technical Trading-Rule Profits in the Foreign Exchange Market: A Bootstrap Approach

Richard M. Levich, Lee R. Thomas

NBER Working Paper No. 3818 (Also Reprint No. r1862)
Issued in August 1991
NBER Program(s):   ITI   IFM

In this paper, we present new evidence on the profitability and statistical significance of technical trading rules in the foreign exchange market. We utilize a new data base, currency futures contracts for the period 1976-1990, and we implement a new testing procedure based on bootstrap methodology. Using this approach, we generate thousands of new exchange rate series constructed by random reordering of each original series. We then measure the profitability of the technical rules for each new series. The significance of the profits in the original series is assessed by comparison to the empirical distribution of results derived from the thousands of randomly generated series. Overall, our results suggest that simple technical trading rules have very often led to profits that are highly unusual. Splitting the entire 15-year sample period into three 5-year periods reveals that on average the profitability of some trading rules declined in the 1986-1990 period although profits remained positive (on average) and significant in many cases.

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Document Object Identifier (DOI): 10.3386/w3818

Published: Journal of International Money and Finance, Vol. 12, no. 5, October 1993p. 451-474

 
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