We examine the effects of endogenously determined realignment expectations in a model of a target zone with sluggish price adjustment. We allow these expectations to be based on a policy rule that generates an increasing probability of realignment as output moves away from full employment. We...

This paper extends the genetic programming techniques developed in Neely, Weller and Dittmar (1997) to show that technical trading rules can make use of information about U.S. foreign exchange intervention to improve their out-of-sample profitability for two of four exchange rates. Rules tend to...

This paper argues that inferring long-horizon asset-return predictability from the properties of vector autoregressive (VAR) models on relatively short spans of data is potentially unreliable. We illustrate the problems that can arise by re-examining the findings of Bekaert and Hodrick (1992),...

Using the genetic programming methodology developed in Neely, Weller and Dittmar (1997), we find trading rules that generate significant excess returns for three of four EMS exchange rates over the out-of-sample period 1986-1996. Permitting the rules to use information about the interest rate...

The adaptive markets hypothesis posits that trading strategies evolve as traders adapt their behavior to changing circumstances. This paper studies the evolution of trading strategies for a hypothetical trader who chooses portfolios from foreign exchange (forex) technical rules in major and...

It is a robust finding that technical trading rules applied to foreign exchange markets have earned substantial excess returns over long periods of time. However, the approach to risk adjustment has typically been rather cursory, and has tended to focus on the CAPM. We examine the returns to a...

This article introduces the subject of technical analysis in the foreign exchange market, with emphasis on its importance for questions of market efficiency. Technicians view their craft, the study of price patterns, as exploiting traders’ psychological regularities. The literature on...

This article investigates the use of genetic programming to forecast out-of-sample daily volatility in the foreign exchange market. Forecasting performance is evaluated relative to GARCH(1,1) and RiskMetrics models for two currencies, DEM and JPY. Although the GARCH/RiskMetrics models appear to...

We analyze the intertemporal stability of excess returns to technical trading rules in the foreign exchange market by conducting true, out-of-sample tests on previously studied rules. The excess returns of the 1970s and 1980s were genuine and not just the result of data mining. But these profit...