CHARTS AS SIGNALS IN MARKOV SWITCHING WORLD

This note evaluates the signal performance of charts under the maintai ned assumption that the DGP is a standard Markov switching model. It i s found that, within this framework, charts contain valuable informati on with respect to the current state of the latent process. Hence, thi s note provides a (statistical) rationale for the reported profitabili ty of chartists rules in terms of an underlying Markov switching model as the DGP.