SPECULATIVE STRATEGIES IN THE FOREIGN EXCHANGE MARKET BASED ON GENETIC PROGRAMMING PREDICTIONS

In this paper, we investigate the out-of-sample forecasting ability of a genetic program to approach the dynamic evolution of the Yen/US$ and Pound Sterling/US$ exchange rates, and verify whether the method can beat the random walk model. Later on, we use the predicted values to generate a trading rule and we check the possibility of obtaining extraordinary profits in the Foreign Exchange Market. Our results reveal a slight forecasting ability for one-period-ahead which is lost when more periods ahead are considered. On the other hand, our trading strategy obtains above-normal profits. However, when transaction costs are incorporated, the profits practically disappear or become negativ