The Significance of Technical Trading-Rule Profits in the Foreign Exchange Market: a Bootstrap Approach

36 Pages Posted: 19 Jul 2000 Last revised: 10 Jun 2008

Richard M. Levich

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Lee R. Thomas

Investcorp - London Office

Date Written: August 1991

Abstract

In this paper, we present new evidence on the profitability and statistical significance of technical trading rules in the foreign exchange market. We utilize a new data base, currency futures contracts for the period 1976-1990, and we implement a new testing procedure based on bootstrap methodology. Using this approach, we generate thousands of new exchange rate series constructed by random reordering of each original series. We then measure the profitability of the technical rules for each new series. The significance of the profits in the original series is assessed by comparison to the empirical distribution of results derived from the thousands of randomly generated series. Overall, our results suggest that simple technical trading rules have very often led to profits that are highly unusual. Splitting the entire 15-year sample period into three 5-year periods reveals that on average the profitability of some trading rules declined in the 1986-1990 period although profits remained positive (on average) and significant in many cases.

Suggested Citation

Levich, Richard M. and Thomas, Lee R., The Significance of Technical Trading-Rule Profits in the Foreign Exchange Market: a Bootstrap Approach (August 1991). NBER Working Paper No. w3818. Available at SSRN: https://ssrn.com/abstract=226734

Richard M. Levich (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0422 (Phone)
212-995-4256 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Lee R. Thomas

Investcorp - London Office

48 Grosvenor Street
London W1K 3HW
United Kingdom

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