Real-Time Trading Models and the Statistical Properties of Foreign Exchange Rates

Abstract

The contributions of this article are twofold. First, the performance of a widely used commercial real-time trading model is compared with the performance of systematic currency traders. Second, the real-time trading model is used to evaluate the statistical properties of foreign exchange rates. The out-of-sample test period is seven years of high-frequency data for four major rates. The trading model yields positive annualized returns (net of transaction costs) in all cases. The null hypothesis of whether the real-time performances of the foreign exchange series are consistent with traditional statistical processes is tested under the probability distributions of the performance measures.