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Technical Trading Rules in the European Monetary System

Working Paper No. 97-015c

45 Pages Posted: 21 Dec 1998  

Christopher J. Neely

Federal Reserve Bank of St. Louis - Research Division

Paul A. Weller

University of Iowa - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: November 17, 1998

Abstract

Using genetic programming, we find trading rules that generate significant excess returns for three of four EMS exchange rates over the out-of-sample period 1986-1996. Permitting the rules to use information about the interest rate differential proved to be important. The reduction in volatility resulting from the imposition of a narrower band may reduce trading rule profitability. Our results cannot be duplicated by commonly used moving average rules, filter rules or by two rules designed to exploit known features of target zone rates. There is no evidence that the excess returns are compensation for bearing systematic risk.

JEL Classification: G0, G14

Suggested Citation

Neely, Christopher J. and Weller, Paul A., Technical Trading Rules in the European Monetary System (November 17, 1998). Working Paper No. 97-015c. Available at SSRN: https://ssrn.com/abstract=141609 or http://dx.doi.org/10.2139/ssrn.141609

Christopher J. Neely (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States
314-444-8568 (Phone)
314-444-8731 (Fax)

HOME PAGE: http://www.stls.frb.org/research/econ/cneely/

Paul A. Weller

University of Iowa - Department of Finance ( email )

Iowa City, IA 52242-1000
United States
319-335-1017 (Phone)
319-335-3690 (Fax)

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