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

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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.

Suggested Citation

  • Robert Dittmar & Christopher J. Neely & Paul A. Weller, 1997. "Is technical analysis in the foreign exchange market profitable? a genetic programming approach," Working Papers 1996-006, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:1996-006
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    Keywords

    Programming (Mathematics); Foreign exchange;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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