are all central bank interventions created equal an empirical investigation abstract this study investigates the relationship between central bank interventions and technical trading rule profitability in the spot foreign exchange market because interventions are not necessarily exogenous events we analyze the relationships between interventions by the g 3 central banks financial market conditions changes in monetary policy and technical trading profitability by considering announced unannounced unilateral and coordinated interventions separately we provide more insight into the interrelationships between these factors than previous studies we find that the level of technical trading profits and market uncertainty increase preceding and remain high during interventions especially announced and coordinated but decrease afterward a preliminary investigation of the possible role of a time varying risk premium around interventions cannot be rejected

quote inefficiency in options markets in an arbitrage free economy with non zero bid ask spreads the existence of payoffs whose price is lower than the price of a dominated payoff cannot be discarded in general however when the former price corresponds to trivial portfolios which involve buying or selling one unit of the basis assets its presence although not an arbitrage is a severe market anomaly which we refer to as an inefficient quote in an empirical study we report evidence that indicates that in options markets both the frequency and the magnitude of these anomalies are substantial and we document puzzling patterns in their behavior

methodical madness technical analysis and the irrationality of exchange rate forecasts substantial empirical research documents that exchange rate forecasts are not formed rationally this paper identifies a common technical trading signal the head and shoulders pattern as a potential source of departures from rationality in exchange rate forecasts forecasts based on this pattern are evaluated for daily dollar exchange rates over 1973 to 1994 using two criteria for rationality profitability and efficiency resulting profits replicable in real time are tested for statistical significance using a bootstrap technique we find that the rule is profitable but not efficient since it is dominated by simpler trading rules

u s intervention assessing the probability of success this paper estimates the unconditional and conditional probabilities that u s interventions successfully smooth short term mark dollar and yen dollar exchange rates the sample period extends from february 1987 to february 1990 assuming a binomial distribution the number of observed successes usually is greater than one would expect to see randomly results from a logit model suggest that coordinated intervention has a higher probability of success than unilateral intervention the probability of success also increases with the dollar amount of an intervention other conditioning variables are not significant the paper presents a reaction function with adjustments for the incidentally truncated nature of intervention data predicted values serve as instruments for intervention in the logit models

time varying risk premia volatility and technical trading rule profits evidence from foreign currency futures markets abstract this paper re examines the efficiency of foreign currency futures markets by evaluating the role of time varying risk premia and volatility in explaining technical trading rule profits the results show that large parts of the technical rule profits can be explained by the time varying risk premia estimated from a general model for the conditional capm the bootstrap distributions for the profits under the null model average one third to one half of the actual profits and enclose the actual profits well within the 90 confidence intervals time varying conditional volatility explains an additional 10 of the profits

the temporal pattern of trading rule returns and exchange rate intervention intervention does not generate technical trading profits abstract this paper characterizes the temporal pattern of trading rule returns and official intervention for australian german swiss and u s data to investigate whether intervention generates technical trading rule profits the data reject the hypothesis that intervention generates inefficiencies from which technical rules profit in particular high frequency data show that abnormally high trading rule returns precede german swiss and u s intervention australian intervention precedes high trading rule returns but trading intervention patterns make it implausible that intervention actually generates those returns rather intervention responds to exchange rate trends from which trading rules have recently profited

the determinants of foreign exchange intervention by central banks evidence from australia abstract intervention by the reserve bank of australia on foreign exchange markets from 1983 to 1997 is conjectured to have been determined by exchange rate trend correction exchange rate volatility smoothing the us and australian overnight interest rate differentials profitability and foreign currency reserve inventory considerations using probit and friction models we show that these factors were significant influences on intervention behavior consistent with the constraint of intervening only when a clear trend is apparent we find that above average measures of deviations from trend and of volatility muted the response of the reserve bank

the significance of technical trading rule profits in the foreign exchange market a bootstrap approach abstract in this paper we present new evidence on the profitability and statistical significance of technical trading rules in the foreign exchange market we utilize a new data base currency futures contracts for the period 1976 1990 and we implement a new testing procedure based on bootstrap methodology our results suggest that simple technical trading rules have very often led to profits that are highly unusual splitting the entire sample period into three 5 year periods reveals that on average the profitability of some trading rules declined in the latest period although profits remained positive on average and significant in many cases jel f31 f47 g15

lessons from the evolution of foreign exchange trading strategies abstract 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 emerging markets the carry trade and us equities the results show that a backtesting procedure to choose optimal portfolios improves upon the performance of nonadaptive rules we also find that forex trading alone dramatically outperforms the s p 500 with much larger sharpe ratios over the whole sample but there is little gain to coordinating forex and equity strategies which explains why practitioners consider these tools separately forex trading returns dip significantly in the 1990s but recover by the end of the decade and have been markedly superior to an equity position since 1998 overall trading rule returns still exist in forex markets with substantial stability in the types of rules though they have migrated to emerging markets to a considerable degree

a friction model of daily bundesbank and federal reserve intervention abstract this paper takes a novel approach to derive a central bank intervention reaction function a garch model for exchange rates is amended to allow interventions to have an effect on both the mean and the variance of exchange rate returns an intervention reaction function is obtained by combining the model with a loss function for the central bank estimation results for the implied friction model reproduce the familiar leaning against the wind policy by the bundesbank and the federal reserve furthermore the central banks appear to have reacted to increases in the conditional variance of daily dm returns

beating the foreign exchange market filter rule profits found in foreign exchange markets in the early days of the current managed float persist in later periods as shown by statistical tests developed and implemented here the test is consistent with but independent of a wide variety of asset pricing models the profits found cannot be explained by risk if risk premia are constant over time inclusion of the home foreign interest rate differential in computing profits has little effect on the comparison of filter returns to those of buy and hold in the early years of the generalized managed floating that began in march 1973 filter rule profits in excess of buy and hold were found for many countries logue sweeney and willett 18 dooley and shafer 6 cornell and dietrich 5 it was unclear however whether such profits indicated inefficiencies first it was not clear that risk was adequately handled in such tests and often risk was ignored second there was no evidence such profits would be available postsample and third there was no statistical test of the significance of these profits this paper uses the logic of risk return tradeoffs to analyze the role of risk in such tests and illustrates the logic in a discussion using the sharpe lintner capital asset pricing model capm although a breeden consumption based capm a merton intertemporal capm or an arbitrage pricing model apm could easily be used the paper develops a test of statistical significance appropriate to foreign exchange markets section i analyzing the rate of return on foreign exchange speculation less the foreign domestic interest rate differential the test explicitly assumes that risk premia are constant over the sample the excess rates of return observable in using filters in going from a risk free dollar asset to a risk free deutsche mark dm asset persist into the 1980 s section ii and this is true even when taking account of transactions costs it turns out that these results for the dm case do not depend very much on the interestrate differential but primarily on exchange rate behavior this is useful to know because it is often quite difficult to find matching interest rate data of high quality for a sample of nine other currencies using only exchange rates section iii shows that the excess returns made in the first 610 days of the float persist in the next 1 220 days into the 1980 s dooley and shafer 7 find similar persistence in experiments that do not use buy and hold and have no significance tests when filter rule profits have been found in spot exchange markets it has often been argued that the profits are due to risk this paper uses the capm to analyze rates of return both to buy and hold and to filter strategies it turns out that the claremont mckenna college and claremont graduate school arthur d warga douglas joines and thomas d willett offered helpful comments and ning ning koo provided research assistance

technical analysis and the effectiveness of central bank intervention abstract using daily data on foreign exchange interventions of both the bundesbank and the fed we provide further evidence that central banks earn profits with interventions and that technical trading rules are unusually profitable on days on which interventions take place we argue that what lies at the root of these seemingly contradictory results is that a intervention profits and trading rule profitability are measured over different horizons and b after interventions exchange rates tend to move contrary to central banks intentions in the short run but in agreement with their intentions in the long run

combining mean reversion and momentum trading strategies in foreign exchange markets abstract the literature on equity markets documents the existence of mean reversion and momentum phenomena researchers in foreign exchange markets find that foreign exchange rates also display behaviors akin to momentum and mean reversion this paper implements a trading strategy combining mean reversion and momentum in foreign exchange markets the strategy was originally designed for equity markets but it also generates abnormal returns when applied to uncovered interest parity deviations for five countries i find that the pattern for the positions thus created in the foreign exchange markets is qualitatively similar to that found in the equity markets quantitatively this strategy performs better in foreign exchange markets than in equity markets also it outperforms traditional foreign exchange trading strategies such as carry trades and moving average rules

can markov switching models predict excess foreign exchange returns abstract this paper merges the literature on technical trading rules with the literature on markov switching to develop economically useful trading rules the markov models out of sample excess returns modestly exceed those of standard technical rules and are profitable over the most recent subsample a portfolio of markov and standard technical rules outperforms either set individually on a risk adjusted basis the markov rules high excess returns contrast with mixed performance on statistical tests of forecast accuracy there is no clear source for the trends but permitting the mean to depend on higher moments of the exchange rate distribution modestly increases returns

the cost of a central bank leaning against a random walk abstract using a stochastic model we show that a central bank is expected to suffer a loss when it temporarily affects the exchange rate by sterilized intervention against a random walk we also demonstrate that the methodology used in several studies of the profitability of official central bank intervention biases their results towards finding positive profits this bias created by only observing periods where cumulative intervention sums to zero accounts for the seemingly contradictory empirical results of several intervention profitability studies

central bank forex internvention assessed in continous time abstract this paper looks at some of the principal characteristics of foreign exchange intervention by central banks the approach is novel in that virtually continous time data have been exploited using reuters screen information jel f31

central bank intervention and trading rule profits in foreign exchange markets abstract moving average trading rules are utilized in both futures and spot foreign currency markets to show that significant positive profits can be earned in four of five currencies examined the results are consistent for both in sample and forward simulation tests regression results demonstrate that central bank intervention is strongly associated with the profitability of trading returns for the three major currencies dm yen and pound and partially explains returns for the sf and cd consistent with conjectures in previous studies that news concerning intervention tends to be revealed over weekends we find that moving average trading rule returns are significantly positive on fridays and mondays and not significantly different from zero in the middle of the week

technical analysis and central bank intervention abstract this paper extends genetic programming techniques to show that us foreign exchange intervention information improves technical trading rules profitability for two of four exchange rates over part of the out of sample period rules trade contrary to intervention and are unusually profitable on days prior to intervention indicating that intervention is intended to halt predictable trends intervention seems to be more successful in checking such trends in the out of sample 1981 98 period than in the in sample 1975 80 period any improvement in performance results from more precise estimation of the relationship between current and past exchange rates rather than from information about contemporaneous intervention

fed intervention dollar appreciation and systematic risk abstract in a four factor asset pricing model estimated on daily data fed intervention significantly affects betas of surprises in the market return expected inflation rate yield curve and corporate bond risk premium fed foreign currency sales cause economically and statistically significant increases in the systematic risk premium in appreciation and thus in the dollar s expected appreciation rate the direction the fed desires and consistent with the signaling but not the portfolio balance channel intervention s effects on actual appreciation are less reliable they depend on unpredictable risk factor realizations even successful intervention to strengthen the dollar may be costly by increasing the dollar s systematic risk intervention reduces the attractiveness of u s relative to foreign investments further uncertainty about future fed interventions may induce resource misallocation ceteris paribus investors find it harder to estimate risk adjusted discount rates and forecast the home currency value of cash flows

stock allocation in general multi echelon distribution systems with r s order up to policies in this paper we analyze stock allocation policies in general n echelon distribution systems where it is allowed to hold stock at all levels in the network the goal is to achieve differentiated target customer service levels fill rates various allocation rules and accompanying numerical methods that have already been developed for smaller networks are extended and compared in an extensive numerical experiment we conclude that the extension of balanced stock rationing see van der heijden 1996 is the most accurate method in particular in cases of relatively high imbalance if the imbalance is not too high the extension of consistent appropriate share rationing see de kok et al 1994 verrijdt and de kok 1996 performs good as well

is technical analysis in the foreign exchange market profitable a genetic programming approach using genetic programming techniques to find technical trading rules we find strong evidence of economically significant out of sample excess returns to those rules for each of six exchange rates over the period 1981 1995 further when the dollar deutsche mark rules are allowed to determine trades in the other markets there is significant improvement in performance in all cases except for the deutsche mark yen betas calculated for the returns according to various benchmark portfolios provide no evidence that the returns to these rules are compensation for bearing systematic risk bootstrapping results on the dollar deutsche mark indicate that the trading rules detect patterns in the data that are not captured by standard statistical models

excess returns and official intervention canada 1952 1960 research shows that filter rules in foreign exchange markets yield higher than normal profits other work indicates that central banks lean against the wind in those markets and some claim that this intervention generates profits for private speculators this study which uses daily data for exchange rates and official re serves indicates that excess profits from filter rules between the u s and canadian dollar during the 1950s are the result of intervention by the bank of canada