DP10018 Forty Years, Thirty Currencies and 21,000 Trading Rules: A Large-scale, Data-Snooping Robust Analysis of Technical Trading in the Foreign Exchange Market

Author(s):	Po-Hsuan Hsu, Mark P Taylor
Publication Date:	June 2014
Keyword(s):	data-snooping bias, Foreign exchange, technical analysis, trading rules
JEL(s):	C53, F31, G15
Programme Areas:	International Macroeconomics, Financial Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=10018

We carry out a large-scale investigation of technical trading rules in the foreign exchange market, using daily data over a maximum of forty years for thirty developed and emerging market currencies. Employing a stepwise test to safeguard against data-snooping bias and examining over 21,000 technical trading rules, we find evidence of substantial predictability in both developed and emerging markets, measured against a variety of returns and risk-adjusted performance metrics. We present time-series and cross-sectional variation in sub-periods and cultural and/or geographic groups, respectively, suggesting that temporarily not-fully-rational behavior and market immaturity lead to technical predictability and potential profitability.