Trading Rule Profitability and Interventions in the Dollar-Deutschmark Market
23 Pages Posted: 3 Apr 2000
Date Written: March 16, 2000
Abstract
The paper examines the period 1979 - 1992 for the relationship between central bank interventions in the dollar-deutschmark market and the profitability of technical trading and also investigates the profitability of interventions. While previous work on this topic has focused on the interventions of the Fed, we include Bundesbank interventions and show that there were several similarities. Our analysis yields the result that eliminating days of Fed and Bundesbank interventions makes a simple moving average trading rule unprofitable. In addition, we study the dynamics of intraday exchange rates following and preceding interventions and provide a VAR analysis on the relationship between interventions and the change in the exchange rate. The results suggest that interventions did not cause the frequently found high profits of technical trading on intervention days.
Keywords: Technical trading rules, chartism, efficient markets, central bank intervention policy, bootstrap
JEL Classification: F31, F33, G14, G15
Suggested Citation: Suggested Citation
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