Technical Analysis and Central Bank Intervention

FRB of St. Louis Working Paper No. 97-002C

33 Pages Posted: 25 Sep 2000

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

Multiple version iconThere are 2 versions of this paper

Date Written: February 2000

Abstract

This paper extends the genetic programming techniques developed in Neely, Weller and Dittmar (1997) to provide some evidence that information about U.S. foreign exchange intervention can improve technical trading rules' profitability for two of four exchange rates over part of the out-of-sample period. Rules tend to take positions contrary to official intervention and are unusually profitable on days prior to intervention, indicating that intervention is intended to check or reverse predictable trends. Intervention seems to be more successful in checking predictable trends in the out-of-sample (1981-1998) period than in the in-sample (1975-1980) period. We conjecture that instability in the intervention process prevents more consistent improvement in the excess returns to rules. We find that the improvement in performance results from more precise estimation of the information in the past exchange rate series, rather than from information about contemporaneous intervention.

Keywords: Technical trading rules, genetic programming, exchange rates, central bank intervention

JEL Classification: F31, G15

Suggested Citation

Neely, Christopher J. and Weller, Paul A., Technical Analysis and Central Bank Intervention (February 2000). FRB of St. Louis Working Paper No. 97-002C, Available at SSRN: https://ssrn.com/abstract=239532 or http://dx.doi.org/10.2139/ssrn.239532

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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