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Is Technical Analysis in the Foreign Exchange Market Profitable? A Genetic Programming Approach

Christopher Neely, Paul Weller and Rob Dittmar
The Journal of Financial and Quantitative Analysis
Vol. 32, No. 4 (Dec., 1997), pp. 405-426
DOI: 10.2307/2331231
Stable URL: http://www.jstor.org/stable/2331231
Page Count: 22
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Is Technical Analysis in the Foreign Exchange Market Profitable? A Genetic Programming Approach
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Abstract

Using genetic programming techniques to find technical trading rules, we find strong evidence of economically significant out-of-sample excess returns to those rules for each of six exchange rates over the period 1981-1995. Further, when the dollar/Deutsche mark rules are allowed to determine trades in the other markets, there is significant improvement in performance in all cases, except for the Deutsche mark/yen. Betas calculated for the returns according to various benchmark portfolios provide no evidence that the returns to these rules are compensation for bearing systematic risk. Bootstrapping results on the dollar/Deutsche mark indicate that the trading rules detect patterns in the data that are not captured by standard statistical models.

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