What do we know about the popularity of technical analysis in foreign exchange markets? A skewness preference perspective

Xiaoye Jin

Journal of International Financial Markets, Institutions and Money, 2021, vol. 71, issue C

Abstract: We propose a risk-preference based analytical framework and through which to provide an empirical explanation for the widespread use and acceptance of technical analysis in the foreign exchange markets even if there is no substantial evidence to support its profitability. We also formally demonstrate the relationship between the investor’s skewness preference and the skewness feature of technical analysis and thus provide a detailed explanation for the investor’s desire for positive skewness through a simple linear regression analysis, which complements and extends most recent risk-preference studies on the popularity of technical analysis.

Keywords: Foreign exchange markets; Technical analysis; Skewness preference; Cumulative prospect theory; Behavioral economics (search for similar items in EconPapers)
JEL-codes: D80 F31 G10 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:71:y:2021:i:c:s1042443120301657

DOI: 10.1016/j.intfin.2020.101281

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