Success and Failure of Technical Trading Strategies in the Cocoa Futures Market

H. Peter Boswijk (), Gerwin Griffioen () and Cars Hommes ()
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Gerwin Griffioen: University of Amsterdam

No 01-016/1, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: A large set of 5350 trend following technica! trading rules is applied to LIFFE and CSCE cocoa futures prices, and to the Pound-Dollar exchange rate, in the period 1983:1-1997:6. We find that 72% of the trading rules generates positive profits, even when correcting for transaction and borrowing costs, when applied to the LIFFE cocoa futures prices. Moreover, a large set of trading rules exhibits statistically significant forecasting power of the LIFFE cocoa futures series. On the other hand the same set of strategies performs poor on the CSCE cocoa futures prices, with only 18% generating positive net profits and hardly any statistically significant forecasting power. The large difference in the performance of technical trading may be attributed to a combination of the demand/supply mechanism in the cocoa market and an accident al influence of the Pound- Dollar exchange rate, reinforcing trends in the LIFFE cocoa futures but weakening trends in the CSCE cocoa futures. Our case-study suggests a connection between the succes or failure of technical trading and the relative magnitudes of trend and volatility of the underlying series.

Keywords: technical trading strategies; commodity futures; exchange rate (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin, nep-fmk and nep-ifn
Date: 2001-02-06
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Related works:
Working Paper: Succes and Failure of Technical Trading Strategies in the Cocoa Futures Market (2001)
Working Paper: Succes and Failure of Technical Trading Strategies in the Cocoa Futures Markets (2000)
Working Paper: Success and Failure of Technical Trading Strategies in the Cocoa Futures Market (2001)
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Persistent link: http://EconPapers.repec.org/RePEc:dgr:uvatin:20010016

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