The profitability of the Technical Analysis

Thesis title: The profitability of the Technical Analysis
Author: Welp, Monja
Thesis type: Diploma thesis
Supervisor: Brůna, Karel
Opponents: Dudzich, Viktar
Thesis language: English
Abstract:
Previous studies do not provide consistent results regarding the profitability of technical trading rules in the foreign exchange market. While many studies using data up to the early 1990s report significant abnormal returns, more recent studies provide evidence that technical trading profits have declined over decades. This paper provides a comprehensive empirical investigation on the profitability of technical trading rules. Using daily data over a sample period of 15 years from 2006 to 2020, a universe of 110 rules is applied to two currencies quoted against U.S. dollar including one developed market currency (Euro) and one emerging market currency (Mexican Peso). Results show that profit opportunities from trading rules for both currency markets still exist, although these profits vary among currencies, between different strategies and among sub samples. Findings suggest that rules based on more complex indicators perform better and the performance for both traditional and more complex rules is greater in the emerging currency market. A sub sample analysis also provides evidence of an upward trend in the performance of trading rules for the Mexican Peso, while for the Euro an increasing profitability is documented for complex rules and a downward trend for traditional rules. The findings can be explained from a microstructure perspective and are consistent with the adaptive market hypothesis.
Keywords: technical trading rules; foreign exchange; exchange rate; adaptive market hypothesis; microstructure approach; technical analysis
Thesis title: The profitability of the Technical Analysis
Author: Welp, Monja
Thesis type: Diplomová práce
Supervisor: Brůna, Karel
Opponents: Dudzich, Viktar
Thesis language: English
Abstract:
Previous studies do not provide consistent results regarding the profitability of technical trading rules in the foreign exchange market. While many studies using data up to the early 1990s report significant abnormal returns, more recent studies provide evidence that technical trading profits have declined over decades. This paper provides a comprehensive empirical investigation on the profitability of technical trading rules. Using daily data over a sample period of 15 years from 2006 to 2020, a universe of 110 rules is applied to two currencies quoted against U.S. dollar including one developed market currency (Euro) and one emerging market currency (Mexican Peso). Results show that profit opportunities from trading rules for both currency markets still exist, although these profits vary among currencies, between different strategies and among sub samples. Findings suggest that rules based on more complex indicators perform better and the performance for both traditional and more complex rules is greater in the emerging currency market. A sub sample analysis also provides evidence of an upward trend in the performance of trading rules for the Mexican Peso, while for the Euro an increasing profitability is documented for complex rules and a downward trend for traditional rules. The findings can be explained from a microstructure perspective and are consistent with the adaptive market hypothesis.
Keywords: technical analysis; technical trading rules; foreign exchange; exchange rate; adaptive market hypothesis; microstructure approach

Information about study

Study programme: Finance and Accounting
Type of study programme: Magisterský studijní program
Assigned degree: Ing.
Institutions assigning academic degree: Vysoká škola ekonomická v Praze
Faculty: Faculty of Finance and Accounting
Department: Department of Monetary Theory and Policy

Information on submission and defense

Date of assignment: 8. 12. 2021
Date of submission: 29. 4. 2022
Date of defense: 1. 6. 2022
Identifier in the InSIS system: https://insis.vse.cz/zp/79025/podrobnosti

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