Is technical analysis in the foreign exchange market profitable? a genetic programming approach

RePEc Short ID: pne3
ORCID iD: 0000-0003-2852-9419

Dittmar, Robert; Neely, Christopher J.; Weller, Paul A.

Working Paper

Is technical analysis in the foreign exchange market profitable? a genetic programming approach

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 a 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 are detecting patterns in the data that are not captured by standard statistical models.

Keywords: Programming (Mathematics); Foreign exchange;

Status: Published in Journal of Financial and Quantitative Analysis, December 1997