Speculative strategies in the foreign exchange market based on genetic programming predictions

• Autores: Marcos Alvarez Díaz
• Localización: Applied financial economics, ISSN 0960-3107, Vol. 20, Nº. 4-6, 2010, págs. 465-476
• Idioma: inglés
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• Resumen

  • In this article, we investigate the out-of-sample forecasting ability of a Genetic Program (GP) to approach the dynamic evolution of the yen/US dollar and British pound/US dollar exchange rates, and verify whether the method can beat the random walk model. Later on, we use the predicted values to generate a trading rule and we check the possibility of obtaining extraordinary profits in the foreign exchange market. Our results reveal a slight forecasting ability for one-period-ahead, which is lost when more periods ahead are considered. On the other hand, our trading strategy obtains above-normal profits. However, when transaction costs are incorporated, the profits practically disappear or become negative.