1986). Although the Pound-Dollar exchange rate should be independently generated from the cocoa futures series, it has some impact on the price level of the cocoa series as described above. The table shows that the Pound-Dollar exchange rate is correlated strongly with the level of the LIFFE cocoa continuation series and also (although a little bit weaker) with the CSCE cocoa continuation series. In particular, in the first subperiod 1983:1-1987:12 the Pound-Dollar exchange rate is correlated strongly with the level of the LIFFE cocoa futures series (cross correlation coefficient 0.88) and also (although a little bit weaker) with the CSCE cocoa futures series (cross correlation coefficient 0.58). In the other subperiods, there is little cross correlation between the Pound-Dollar exchange rate and the LIFFE and/or the CSCE cocoa futures series.
Apparently, due to the accidental correlation (spurious relation) in the period 1983:1-1987:12 between the Pound-Dollar exchange rate movements and the demand-supply mechanism in the cocoa market, trends in the LIFFE cocoa futures price are reinforced and trends in the CSCE cocoa futures price are weakened. Because the technical trading rules we tested are mainly trend-following techniques, this gives a possible explanation for the large differences in the performance of technical trading in the LIFFE and CSCE cocoa futures.
In order to explore further the possible impact of the Pound-Dollar exchange rate on the profitability of trend-following technical trading techniques when applied to the cocoa data series, we test the trading rules on the LIFFE cocoa price series expressed in Dollars and on the CSCE cocoa price series expressed in Pounds. If the LIFFE and CSCE cocoa futures prices are expressed in the other currency, then the results of testing technical trading strategies change indeed. In order to test for economic significance table 2.15 lists the percentage of trading rules with a strictly positive mean excess return for all trading rules sets across all subperiods. For the full sample, 83:1-97:6, for the LIFFE cocoa series in Dollars 33.85% (versus 58.34% in Pounds) of all trading rules generate a strictly positive mean excess return, while for CSCE cocoa futures in Pounds 19.30% (versus 12.18% in Dollars) of the trading rules generate a strictly positive mean excess return. Especially in the first subperiod 1983:1-1987:12 the results change dramatically. For the LIFFE cocoa series in Dollars 23.71% (versus 73.25% in Pounds) of all trading rules generate a strictly positive mean excess return, while for CSCE cocoa futures in Pounds 57.93% (versus 14.14% in Dollars) of the trading rules generate a strictly positive mean excess return.
Table 2.16 summarizes the results concerning the statistical forecasting power of the trading rules applied to the LIFFE cocoa futures in Dollars and the CSCE cocoa futures in Pounds. The table shows for all periods for both data series the percentage of trading