The Obstinate Passion of Foreign Exchange Professionals: Technical Analysis

Authors: Menkhoff, Lukas; Taylor, Mark P.

Source: Journal of Economic Literature, Volume 45, Number 4, December 2007 , pp. 936-972(37)

Publisher: American Economic Association

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Abstract:

Technical analysis involves the prediction of asset price movements from inductive analysis of past movements. We establish a number of stylized facts, including that technical analysis is widespread in the foreign exchange market and that it may be profitable. We then analyze four arguments that have been put forward to explain this: that the market may not be fully rational; that technical analysis may exploit the influence of official interventions; that it may be an efficient form of information processing; and that it may inform on nonfundamental influences. While each may have some validity, the latter is the most plausible.

Document Type: Research article

DOI: http://dx.doi.org/10.1257/002205107783216574

Publication date: 2007-12-01

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The Journal of Economic Literature (JEL) began publication in 1969 under the auspices of the American Economic Association with quarterly issues appearing in March, June, September, and December. JEL contains survey and review articles, book reviews, an annotated bibliography of newly published books, and a list of current dissertations in North American universities.
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