SPECULATIVE STRATEGIES IN THE FOREIGN EXCHANGE MARKET BASED ON GENETIC PROGRAMMING PREDICTIONS

Marcos Alvarez-Diaz And Alberto à Lvarez ()
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Marcos Alvarez-Diaz And Alberto à Lvarez: Dept of Economics Columbia University

No 217, Computing in Economics and Finance 2005 from Society for Computational Economics

Abstract: In this paper, we investigate the out-of-sample forecasting ability of a genetic program to approach the dynamic evolution of the Yen/US$ and Pound Sterling/US$ exchange rates, and verify whether the method can beat the random walk model. Later on, we use the predicted values to generate a trading rule and we check the possibility of obtaining extraordinary profits in the Foreign Exchange Market. Our results reveal a slight forecasting ability for one-period-ahead which is lost when more periods ahead are considered. On the other hand, our trading strategy obtains above-normal profits. However, when transaction costs are incorporated, the profits practically disappear or become negativ

Keywords: Genetic Programming; Exchange Rate Forecasting; Foreign Exchange Market Trading Strategies (search for similar items in EconPapers)
JEL-codes: C14 C53 G14 (search for similar items in EconPapers)
Date: 2005-11-11
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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf5:217

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