Is Technical Analysis in the Foreign Exchange Market Profitable?: A Genetic Programming Approach

Posted: 20 Nov 1996

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

Robert Dittmar

Citigroup, Inc. - CitiMortgage

Abstract

Using genetic programming techniques to find technical trading rules, we find strong evidence of economically significant out-of-sample excess returns to those rules for each of six exchange rates, over the period 1981-1995. Further, when the dollar/deutschemark rules are allowed to determine trades in the other markets, there is significant improvement in performance in all cases, except for the deutschemark/yen. Betas calculated for the returns according to various benchmark portfolios provide no evidence that the returns to these rules are compensation for bearing systematic risk. Bootstrapping results on the dollar/deutschemark indicate that the trading rules detect patterns in the data that are not captured by standard statistical models.

JEL Classification: F31, G0, G14

Suggested Citation

Neely, Christopher J. and Weller, Paul A. and Dittmar, Robert D., Is Technical Analysis in the Foreign Exchange Market Profitable?: A Genetic Programming Approach. Available at SSRN: https://ssrn.com/abstract=42602

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)

Robert D. Dittmar

Citigroup, Inc. - CitiMortgage ( email )

St. Louis, MO
United States

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