Speculative strategies in the foreign exchange market based on genetic programming predictions
ISSN: 0960-3107
Ano de publicación: 2010
Volume: 20
Número: 4-6
Páxinas: 465-476
Tipo: Artigo
Outras publicacións en: Applied financial economics
Resumo
In this article, we investigate the out-of-sample forecasting ability of a Genetic Program (GP) to approach the dynamic evolution of the yen/US dollar and British pound/US dollar exchange rates, and verify whether the method can beat the random walk model. Later on, we use the predicted values to generate a trading rule and we check the possibility of obtaining extraordinary profits in the foreign exchange market. Our results reveal a slight forecasting ability for one-period-ahead, which is lost when more periods ahead are considered. On the other hand, our trading strategy obtains above-normal profits. However, when transaction costs are incorporated, the profits practically disappear or become negative.