Technical Trading Rule Profitability and Foreign Exchange Intervention

Abstract

Recently, research has shown that simple technical trading rules have predictive power in foreign exchange markets. One feature that sets these markets apart from others is that certain large traders, central banks, may not be optimizing trading profits. This paper tests the performance of a few simple rules during intervention and nonintervention periods. The unusual performance of the rules is large while interventions are taking place, and not significantly different from zero otherwise. This is consistent with this dimension of market inefficiency being connected to exchange rate behavior influenced by the central bank.

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

JEL Classification: F31, F33, G14, G15