CENTRAL BANK INTERVENTION AND TRADING RULE PROFITS IN FOREIGN-EXCHANGE MARKETS

Moving average trading rules are utilized in both futures and spot for eign currency markets to show that significant, positive profits can b e earned in four of five currencies examined. The results are consiste nt for both in-sample and forward simulation tests. Regression results demonstrate that central bank intervention is strongly associated wit h the profitability of trading returns for the three major currencies (DM, Yen and Pound), and partially explains returns for the SF and CD. Consistent with conjectures in previous studies that 'news' concernin g intervention tends to be revealed over weekends, we find that moving average trading rule returns are significantly positive on Fridays an d Mondays, and not significantly different from zero in the middle of the week. (C) 1997 Elsevier Science Ltd.