Technical Trading Rules in the European Monetary System

Journal of International Money and Finance, June 1999, pp.429-58

Posted: 22 Dec 1998

See all articles by Christopher J. Neely

Christopher J. Neely

Federal Reserve Bank of St. Louis - Research Division

Paul A. Weller

University of Iowa - Department of Finance

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Abstract

This paper describes the use of genetic programming to create trading rules based on past exchange rates and interest differentials. In an out-of-sample period, 1986-1996, these rules make significantly positive excess returns for three of four EMS exchange rates. There is evidence that the returns to the rules are higher when bands are wider, as a result of an increase in the variability of the exchange rate. There is no evidence that returns can be explained by conventional measures of risk. The rules outperform commonly used moving average and filter rules and do not appear to exploit previously known features of target zone exchange rates such as mean reversion.

Note: This is a description of the paper and is not the actual abstract.

JEL Classification: G0, G14

Suggested Citation

Neely, Christopher J. and Weller, Paul A., Technical Trading Rules in the European Monetary System. Journal of International Money and Finance, June 1999, pp.429-58, Available at SSRN: https://ssrn.com/abstract=141622

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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