Speculative strategies in the foreign exchange market based on genetic programming predictions
ISSN: 0960-3107
Datum der Publikation: 2010
Ausgabe: 20
Nummer: 4-6
Seiten: 465-476
Art: Artikel
Andere Publikationen in: Applied financial economics
Zusammenfassung
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.