Technical analysis in the foreign exchange market: a cointegration-based approach

Fiess, N. and MacDonald, R. (1999) Technical analysis in the foreign exchange market: a cointegration-based approach. Multinational Finance Journal, 3(3), pp. 147-172.

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Publisher's URL: http://www.mfsociety.org/page.php?pageID=175&reqJournInstID=11

Abstract

Most technical analysis studies are concerned with the profitability of technical trading rules and almost all of them focus exclusively on trend- following patterns. In this paper we examine a different kind of technical indicator which suggests a structural relationship between High, Low, and Close prices of daily exchange rates. Since, for a given exchange rate, it can be shown that these prices have different time series properties, it is possible to explore the structural relationships between them using multivariate cointegration methods. This methodology facilitates the construction of dynamic structural econometric models, which are used to derive dynamic out-of-sample forecasts over different time horizons. Compared to standard benchmarks, it turns out that these models have extremely good forecasting properties, even when allowance has been made for transactions costs and risk premia.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Fiess, Dr Norbert and MacDonald, Professor Ronald
Authors: Fiess, N., and MacDonald, R.
College/School:College of Social Sciences > Adam Smith Business School
College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Multinational Finance Journal
Publisher:Multinational Finace Society
ISSN:1096-1879

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