for many papers published on the topic in the 1990s. Notice however that Brock et al. (1992) in fact do not apply the correct t-test statistic, as derived in footnote 9, page 1738. See section 2.5 in Chapter 2 of this thesis for a further discussion on this topic.
Levich and Thomas (1993) criticize Dooley and Shafer (1983) for not reporting any measures of statistical significance of the technical trading rule profits. Therefore Levich and Thomas (1993) are the first who apply the bootstrap methodology, as introduced by Brock et al. (1992), to exchange rate data. Six filters and three moving averages are applied to the US Dollar closing settlement prices of the BP, CD, DEM, JPY and SF futures contracts traded at the International Monetary Market of the Chicago Mercantile Exchange in the period January 1973 through December 1990. Levich and Thomas (1993) note that the trading rules tested are very popular ones and that the parameterizations are taken from earlier literature. Just like Brock et al. (1992) they report that they mitigate the problem of data mining by showing the results for all strategies. It is found that the simple technical trading rules generate unusual profits (no corrections are made for transaction costs) and that a random walk model cannot explain these profits. However there is some deterioration over time in the profitability of the trading rules, especially in the 1986-1990 period.
Lee and Mathur (1995) remark that most surveys, whose findings are in favor of technical trading if applied to exchange rate data, are conducted on US Dollar denominated currencies and that the positive results are likely to be caused by central bank intervention. Therefore to test market efficiency of European foreign exchange markets they apply 45 different crossover moving-average trading strategies to six European spot cross-rates (JPY/BP, DEM/BP, JPY/DEM, SF/DEM and JPY/SF) in the May, 1988 to December, 1993 period. A correction for 0.1% transaction costs per trade is made. They find that moving-average trading rules are marginally profitable only for the JPY/DEM and JPY/SF cross rates, currencies that do not belong to the European exchange rate mechanism (ERM). Further it is found that in periods during which central bank intervention is believed to have taken place, trading rules do not show to be profitable in the European cross rates. Finally Lee and Mathur (1995) propose to apply a recursively optimizing test procedure with a rolling window for the purpose of testing out-of-sample forecasting power. Every year the best trading rule of the previous half-year is applied. Also this out-of-sample test procedure rejects the null hypothesis that moving averages have forecasting power. It is concluded that the effect of target zones on the dynamics of the ERM exchange rates may be partly responsible for the lack of profitability of moving-average trading rules. The dynamics of ERM exchange rates are different from those of common exchange ranges in that they have smaller volatility.