Advanced frequency and time domain filters for currency portfolio management

Christian Dunis () and Jia Miao
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Christian Dunis: CIBEF — Centre for International Banking, Economics and Finance, JMU, John Foster Building
Jia Miao: CIBEF — Centre for International Banking, Economics and Finance, JMU, John Foster Building

Journal of Asset Management, 2006, vol. 7, issue 1, No 4, 22-30

Abstract: Abstract The first motivation of this paper is to study the existence of cyclical properties among FX markets with the use of spectral analysis. Secondly, the economic value of a trading model is studied based on spectral analysis compared with technical trending models replicating the performance of typical currency managers as in Lequeux and Acar (European Journal of Finance, 4, 311–330, 1998). It is found that both spectral models and moving average convergence divergence (henceforth MACD) technical trending models fail to perform satisfactorily when markets display cyclical properties. Spectral filters are then proposed to take alternative trading strategies during such times: the results show that in the three periods considered, trading performances are significantly enhanced by the addition of the two spectral filters proposed, either to close all market positions when markets are in cyclical mode (a ‘no-trade’ filter) or to reverse the original MACD trading signals during such times (a ‘reverse’ filter).

Keywords: currency management; periodogram decomposition; spectral analysis; spectral filter; volatility filter (search for similar items in EconPapers)
Date: 2006
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DOI: 10.1057/palgrave.jam.2240199

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