Technical Analysis in the Foreign Exchange Market: A Cointegration-Based Approach

Multinational Finance Journal, 1999, vol. 3, no. 3, pp. 147-172 | https://doi.org/10.17578/3-3-1

                                                                           Norbert Fiess, University of Strathclyde, U.K.

                                                                           Ronald MacDonald, University of Strathclyde, U.K.

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.

Keywords : Exchange rates forecasting; technical analysis

Citation (Format 1)
Fiess, Norbert, and Ronald MacDonald, 1999, Technical Analysis in the Foreign Exchange Market: A Cointegration-Based Approach, Multinational Finance Journal 3, 147-172.
Citation (Format 2)
Fiess, N., MacDonald, R., 1999. Technical Analysis in the Foreign Exchange Market: A Cointegration-Based Approach. Multinational Finance Journal 3, 147-172.

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Dynamic and Stochastic Instability and the Unbiased Forward Rate Hypothesis: A Variable Mean Response Approach

Multinational Finance Journal, 1999, vol. 3, no. 3, pp. 173-221 | https://doi.org/10.17578/3-3-2

                                                                           Winston T. Lin, State University of New York at Buffalo, U.S.A.                                                   

Abstract:
This paper examines how determinants of volatility and stock returns change with financial crisis. The contributions of the paper are twofold. First, using a GARCH-M framework, risk and return are jointly modeled by using macroeconomic variables both in the variance and the mean equations. The conditional variance equation is specified by including macro-economic variables, a relevant information set for emerging economies, that is often overlooked in various GARCH specifications. Second, determinants of risk and return are investigated before during and after a major financial crisis at ISE. We show that, both the determinants of risk and the risk-return relationship change as the economy switches from one regime to the other.

Keywords : Currency betas; five special tests; four-step generalized least squares; mean and variance shifts; the unbiasedness hypothesis; variable-mean-response random coefficients models

Citation (Format 1)
Lin, Winston T., 1999, Dynamic and Stochastic Instability and the Unbiased Forward Rate Hypothesis: A Variable Mean Response Approach, Multinational Finance Journal 3, 173-221.
Citation (Format 2)
Lin, W., 1999. Dynamic and Stochastic Instability and the Unbiased Forward Rate Hypothesis: A Variable Mean Response Approach. Multinational Finance Journal 3, 173-221.