Profitability of technical trading rules in the Chinese yuan-based foreign exchange market

Abstract

This study provides a comprehensive analysis of technical trading rules in the Chinese yuan-based foreign exchange market. Utilizing daily data spanning seven years for 14 developed and 10 emerging market currencies, we examine a universe of 41,660 trading rules, significantly expanding the scope of previous research. To address data-snooping bias, we employ the Step-SPA(k) tests, revealing excess profitability in at least half of the developed and emerging currencies, indicating heterogeneous market efficiency across currencies. To ensure the robustness of our findings, we conducted a series of checks, including the Step-SPA test for conservative data-snooping bias control, break-even transaction cost analysis to evaluate profitability under trading costs, out-of-sample performance evaluation to assess generalizability, and an examination of bank intervention effects to account for potential market distortions.