2006-11-01
The cost of technical trading rules in the Forex market: A utility-based evaluation
Publication
Publication
Journal of International Money and Finance: theoretical and empirical research in international economics and finance , Volume 25 - Issue 7 p. 1072- 1089
We compute the opportunity cost for rational risk averse agents of using technical trading rules in the foreign exchange rate market. We decompose this opportunity cost into two parts: (i) a cost related to the misallocation of wealth, which increases with the investor's level of risk aversion (allocational cost); and (ii) a cost related to the investor's erroneous belief regarding the sign of the expected excess return (expectational cost). We find that even for low levels of risk aversion the opportunity cost of using chartist rules tends to be prohibitively high.
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doi.org/10.1016/j.jimonfin.2006.09.008, hdl.handle.net/1765/71225 | |
Journal of International Money and Finance: theoretical and empirical research in international economics and finance | |
Organisation | Erasmus Research Institute of Management |
Dewachter, H., & Lyrio, M. (2006). The cost of technical trading rules in the Forex market: A utility-based evaluation. Journal of International Money and Finance: theoretical and empirical research in international economics and finance, 25(7), 1072–1089. doi:10.1016/j.jimonfin.2006.09.008 |