Analysis of the predictive ability and profitability of an analytically derived trading algorithm in the intra-day spot foreign exchange market
Master Thesis
2011
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University of Cape Town
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This paper examines the predictive power and profitability of an analytically derived, technical trading algorithm in the intraday spot foreign exchange market, using over nine years of hourly data. This trading rule, the reservation price policy (RPP), stems from the computer science literature and, based on certain assumptions, is shown to be efficient under the worst-case scenario criterion. The results indicate the existence of significant information content in the trading rule, which is robust to the parameter choice and consistent across the eleven currencies examined. But, the nonparametric, bootstrap analysis shows that the rule does not capture any incremental information above what is accounted for by the seasonal GARCH(1,1)-MA(1) model.
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Includes abstract.
Includes bibliographical references (leaves 87-93).
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Sokolovski, V. 2011. Analysis of the predictive ability and profitability of an analytically derived trading algorithm in the intra-day spot foreign exchange market. University of Cape Town.