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Recent research has discovered two seemingly contradictory facts about U.S. intervention in foreign exchange markets. On the one hand, extrapolative technical trading rules trade against U.S. foreign exchange intervention and produce excess returns—returns in excess of nominal interest rates—during these periods, and U.S. intervention itself, is profitable over long periods. LeBaron (1996) and Szakmary and Mathur (1997) have shown that excess returns to technical trading rules are high during periods of central bank intervention and that the technical rules trade contrary to the direction of official intervention. Along the same lines, Neely and Weller (1997) have shown that trading rules constructed by genetic programs can use information on the direction of U.S. intervention to increase their excess returns in some exchange rates: When the Federal Reserve is buying dollars, traders following technical rules are usually selling dollars and profiting handsomely. Some—Dooley and Shafer (1983), Corrado and Taylor (1986), Sweeney

This paper examines the efficiency of the forward yen/dollar market using micro survey data. Conventional tests of unbiasedness do not correspond directly to the zero-profit condition. Instead, we use the survey data to calculate potential profits of individual forecasters based on a natural trading rule. We find that although the survey data are not the best predictor of future spot rates in terms of typical mean square forecast error criteria, the survey data can be used to obtain on average positive profits. However, these profits are small and highly variable. Similar results are found when we examine profits generated by a trading rule using regression forecasts. The profits are found to be correlated with risk type variables but not other available information. Key Words: Foreign exchange rate; Expectations; Forward rate; and Efficient markets. JEL classification: F31, G14, G15 Acknowledgment: We thank J. Frankel, A. Timmermann, A. Melino, an anonymous referee and seminar partici...

• Among the technical trading signals supplied to customers by foreign exchange trading firms are “support ” and “resistance ” levels. These levels indicate points at which an exchange rate trend is likely to be interrupted or reversed. • A rigorous test of the levels specified by six trading firms during the 1996-98 period reveals that these signals were quite successful in predicting intraday trend interruptions. • Although all six firms were able to identify turning points in exchange rate trends, some firms performed markedly better than others. As a group, the firms predicted turning points in the dollar-yen and dollar-pound exchange rates more accurately than turning points in the dollar-mark exchange rate. • In addition, the predictive power of the support and resistance levels appeared to last at least five business days after they were first communicated to customers. arly in the morning of each business day, the major foreign exchange trading firms send their customers lists of technical trading signals for that day. Timely technical signals are also supplied by major real-time information providers. These signals, which are based primarily on prior price and volume movements, are widely used by active foreign exchange market participants for speculation and for timing their nonspeculative currency transactions. In fact, 25 to 30 percent of foreign exchange traders base most of their trades on

This paper tests whether fitted linear models can replicate results from moment tests inspired by moving average technical trading rules for weekly foreign exchange series. Estimation is performed using standard OLS and maximum likelihood methods, along with a simulated method of moments technique which incorporates the trading rule moments into the estimation procedure. Results show that linear models are capable of replicating the trading rule moments along with the small autocorrelations observed in these series. This result holds for parameter values estimated using SMM and GARCH disturbances, but not for parameters estimated using maximum likelihood. The estimated models are simulated to examine the amount of predictability over long horizons.

Previous studies have reported mixed results regarding the success of technical trading rules in currency markets. Abnormal returns were observed in many studies using data up to the mid 1980s, while more recent studies generally report less success for technical trading rules. This paper tests whether moving average trading rule profits have declined over the period from 1971-2000. If so, previous profits may represent a temporary inefficiency that has since been eliminated in the currency markets. The hypothesis is tested using 18 exchange rate series over a longer time period than in previous studies. Rules are optimized for successive 5-year in-sample periods from 1971-95 and tested over subsequent 5-year out-of-sample periods. Results show that risk-adjusted trading rule profits have declined over time—from an average of 3.5 % in the 1970s to about zero in the 1990s. Thus, market inefficiencies reported in previous studies may have been only temporary inefficiencies. 2

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Abstract: The objective of this paper is describe a new paradigm for the trading of equities. In our formulation, the control corresponds to a feedback law which modulates the amount invested I(t) in stock over time. The controller also includes a saturation limit Imax corresponding to a limit on the value at risk. The admissible stock price evolution p(t) over time is modelled as a family P of uncertain inputs against which we seek robust returns. Motivated by the fact that back-testing of candidate trading strategies involves significant cost and effort associated with computational simulation over sufficiently diverse markets, our paradigm involves the notion of synthetic prices and some idealizations involving the volatility of prices and trading liquidity. Our point of view is that a robust performance certification in this somewhat idealized market setting serves as a filter to determine if a trading strategy is worthy of the considerable time and expense associated with full-scale back-testing. The paper also includes a description of a so-called saturation reset controller. This controller is used to illustrate how the model works in practice and the attainment of robustness objectives over various sub-classes of P.