Technical Analysis in the Foreign Exchange Market: A Cointegration-Based Approach

Norbert Fiess and Ronald MacDonald

Multinational Finance Journal, 1999, vol. 3, issue 3, 147-172

Abstract: Most technical analysis studies are concerned with the profitability of technical trading rules and almost all of them focus exclusively on trend- following patterns. In this paper we examine a different kind of technical indicator which suggests a structural relationship between High, Low, and Close prices of daily exchange rates. Since, for a given exchange rate, it can be shown that these prices have different time series properties, it is possible to explore the structural relationships between them using multivariate cointegration methods. This methodology facilitates the construction of dynamic structural econometric models, which are used to derive dynamic out-of-sample forecasts over different time horizons. Compared to standard benchmarks, it turns out that these models have extremely good forecasting properties, even when allowance has been made for transactions costs and risk premia.

Keywords: exchange rates forecasting; technical analysis (search for similar items in EconPapers)
JEL-codes: F31 G12 (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:mfj:journl:v:3:y:1999:i:3:p:147-172

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