Technical Trading-Rule Profitability, Data Snooping, and Reality Check: Evidence from the Foreign Exchange Market
Journal of Money, Credit and Banking, Vol. 38, pp. 2135-2158, December 8, 2005
35 Pages Posted: 15 Mar 2010
Date Written: August 22, 2005
We report evidence on the profitability and statistical significance among 2,127 technical trading rules. The best rules are found to be significantly profitable based on standard tests. We then employ White's (2000) Reality Check to evaluate these rules and find that data-snooping biases do not change the basic conclusions for the full sample. A sub-sample analysis indicates that the data-snooping problem is more serious in the second half of the sample. Profitability becomes much weaker in the more recent period, suggesting that the foreign exchange market becomes more efficient over time. Evidence from cross exchange rates confirms the basic findings.
Keywords: Foreign Exchange, Technical Trading, Data Snooping, Reality Check
JEL Classification: F31, G15
Suggested Citation: Suggested Citation