Methodical Madness
Technical Analysis and the Irrationality of Exchange‐rate Forecasts
Bibliographic Data
| ID | 9707244 |
|---|---|
| Authors | P H Kevin Chang (0000-0003-0045-5139, Credit Suisse (Switzerland)), Carol L Osler (0000-0003-0210-9512, Federal Reserve Bank of New York) |
| Year | 1999 |
| Volume | 109 |
| Issue | 458 |
| Pages | 636-661 |
| Publication date | 1999-10-01 |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | The Economic Journal (JOURNAL) |
| Journal identifiers | ISSN: 0013-0133 • E-ISSN: 1468-0297 |
| Publisher | Oxford University Press (OUP) (PUBLISHER) |
| DOI | 10.1111/1468-0297.00466 |
| OpenAlex | W2020428763 |
| Language | EN |
| Citations received | 2 |
| References cited | 10 |
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
Econometrics · Economics · Exchange rate · Financial economics · Irrationality · Liberian dollar · Monetary economics · Profitability index · Rationality · Technical analysis · Complex Systems and Time Series Analysis · Finance · Market Dynamics and Volatility · Monetary Policy and Economic Impact
| Citations per year | 0.4 |
|---|---|
| Citation span | 2021 - 2021 (1) |
| Highly cited | No |