Technical Analysis in Foreign Exchange Markets: Linear Versus Nonlinear Trading Rules

• Fernando Fernández-Rodríguez ^[1] ; Simón Sosvilla-Rivero ^[2] ; Julián Andrada-Félix ^[1]
  1. [1] Universidad de Las Palmas de Gran Canaria

     Universidad de Las Palmas de Gran Canaria

     Gran Canaria, España

     
  2. [2] Universidad Complutense de Madrid

     Universidad Complutense de Madrid

     Madrid, España

     
• Localización: Documentos de Trabajo ( Facultad de Ciencias Económicas y Empresariales, Universidad de La Laguna ), Nº. 1, 2000
• Idioma: inglés
• Enlaces
  • Texto Completo Ejemplar
• Resumen

  • In this paper we assess the economic significance of the nonlinear predictability of EMS exchange rates. To that end, and using daily data for nine EMS currencies covering the 1st January 1978- 31st December 1994 period, we consider nearest-neighbour nonlinear predictors, transforming their forecasts into a technical trading rule, whose profitability has been evaluated against the traditional (linear) moving average trading rules, considering both interest rates and transaction costs. Our results suggest that in most of the cases a trading rule based on a nonlinear predictor outperform the moving average, both in terms of returns and in terms of the ideal profit and the Sharpe ratio profitability indicators