Technical analysis and central bank intervention |
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Authors: | Christopher J Neely Paul A Weller |
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Institution: | a Research Department, Federal Reserve Bank of St Louis, PO Box 442, St Louis, MO 63166, USA;b Department of Finance, Henry B. Tippie College of Business Administration, University of Iowa, Iowa City, IA 52242, USA |
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Abstract: | This paper extends genetic programming techniques to show that US foreign exchange intervention information improves technical trading rules' profitability for two of four exchange rates over part of the out-of-sample period. Rules trade contrary to intervention and are unusually profitable on days prior to intervention, indicating that intervention is intended to halt predictable trends. Intervention seems to be more successful in checking such trends in the out-of-sample (1981–98) period than in the in-sample (1975–80) period. Any improvement in performance results from more precise estimation of the relationship between current and past exchange rates, rather than from information about contemporaneous intervention. |
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Keywords: | Technical analysis Trading rule Genetic programming Exchange rate Central bank Intervention |
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