The Cost of Technical Trading Rules in the Forex Market

Pakar Iklan The Cost of Technical Trading Rules in the Forex Market ;Despite the umerous studies reporting the pervasive use and profitability of technical trading rules (TTRs),1 also called chartist rules, there is still a considerable amount of scepticism in the academic literature regarding their true value. Critics of chartist rules often point to the seemingly suboptimal nature of the portfolio composition implied by these rules (e.g. Skouras, 2001a).

After all, investment strategies based on such rules (i ) restrict the information set to a narrow group of pre-defined information variables, (ii ) assume a positive relation of the sign of the signal with future expected excess returns2, and (iii ) imply a bang-bang type of investment strategy, i.e. a strategy where all wealth is invested either short or long. Each of these assumptions goes against the standard rational investor paradigm. The first two assumptions possibly go against the rationality of expectations formation, while the third is in general at odds with the assumption of risk aversion.
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