Further Evidence on Technical Trade Profitability and Foreign Exchange Intervention

Simon Sosvilla-Rivero (), Julian Andrada-Felix () and Fernandez-Rodriguez, Fernando

Applied Economics Letters, 2002, vol. 9, issue 12, pages 827-32

Abstract: New evidence is presented on the positive correlation between returns from technical trading rules and periods of central bank intervention. To that end, the profitability of a trading strategy based on nearest-neighbour (nonlinear) predictors is evaluated, which may be viewed as a generalization of graphical methods widely used in financial markets. Daily data on the US dollar-Deutschemark and US dollar-Japanese Yen covering the 1 February 1982-31 December 1996 period are used. The results suggest that the exclusion of days of US intervention implies a substantial reduction in all profitability indicators (net returns, ideal profit measure, Sharpe ratio and directional forecast), being the reduction grater in the US dollar-Deutschemark case than in the US dollar-Japanese yen case. Copyright 2002 by Taylor and Francis Group

Date: 2002
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