Further Evidence on Technical Trading Profitability and Foreign Exchange Intervention

FEDEA Working Paper No. 99-01

12 Pages Posted: 19 Feb 2002  

Simon Sosvilla-Rivero

Complutense Institute for International Studies

Julián Andrada Félix

University of Las Palmas de Gran Canaria - Faculty of Economic Science

Fernando Fernández Rodríguez

University of Las Palmas de Gran Canaria - Faculty of Economic Science

Multiple version iconThere are 2 versions of this paper

Abstract

In this paper we present new evidence on the positive correlation between returns from technical trading rules and periods of central bank intervention. To that end, we evaluate the profitability of a trading strategy based on nearest-neighbour (nonlinear) predictors, which may be viewed as a generalisation of graphical methods widely used in financial markets. We use daily data on the US Dollar/Deutsche mark and US Dollar/Japanese Yen covering the 1 February 1982 - 31 December 1996 period. Our results suggest that the exclusion of days of US intervention implies a substantial reduction in all profitability indicators (net returns, ideal profit measure, Sharpe ratio and directional forecast), being the reduction grater in the US Dollar-Deustchmark case than in the US Dollar-Japanese yen case.

Keywords: Central bank intervention, Technical trading rules, Exchange rates

JEL Classification: C53, F31

Suggested Citation

Sosvilla-Rivero, Simon and Andrada Félix, Julián and Fernández Rodríguez, Fernando, Further Evidence on Technical Trading Profitability and Foreign Exchange Intervention. FEDEA Working Paper No. 99-01. Available at SSRN: https://ssrn.com/abstract=300480 or http://dx.doi.org/10.2139/ssrn.300480

Simon Sosvilla-Rivero (Contact Author)

Complutense Institute for International Studies ( email )

Carretera de Humera s/n
Madrid, Madrid 28223
Spain
+34913932626 (Phone)

HOME PAGE: http://www.ucm.es/info/ecocuan/ssr/

Julián Andrada Félix

University of Las Palmas de Gran Canaria - Faculty of Economic Science ( email )

E-35017 Las Palmas
Spain
+34 928 45 59 89 (Phone)
+34 928 45 18 29 (Fax)

Fernando Fernández Rodríguez

University of Las Palmas de Gran Canaria - Faculty of Economic Science ( email )

Campus de Tafira
E-35017 Las Palmas
Spain
+34 928 45 18 02 (Phone)
+34 928 45 18 29 (Fax)

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