Advertisement

Testing Filter-Rule Profits in the Foreign Exchange Market

  • Walter Naggl
Conference paper

Abstract

The change in the exchange rate can be decomposed into four components: (1) the interest rate differential between the two currencies involved, (2) the risk premium, (3) the systematic error-of-forecast of the exchange rate, and (4) a random forecast error. The systematic components generate trends in a series. Trends due to systematic errors-of-expectations imply market inefficiency, whereas trends due to the other two systematic components of the change in the exchange rate do not.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Alexander S (1964) Price Movements in Speculative Markets: Trends or Random Walks, No.2. Industrial Management Review 5: 25–46.Google Scholar
  2. Fama, E F (1970) Efficient Capital Markets: A Review of Theory and Empirical Work. The journal of Finance 25: 383–420.Google Scholar
  3. Sweeney R J (1986) Beating the Foreign Exchange Market. The Journal of Finance 41: 163–82.CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 1993

Authors and Affiliations

  • Walter Naggl
    • 1
  1. 1.Hypo-BankMünchen 81Germany

Personalised recommendations