Sweeney (1986) develops a test of the significance of filter rule profits that explicitly assumes constant risk/return trade-off due to constant risk premia. Seven different filter rules in the range [0.5%, 10%] are applied to the US Dollar against the BF, BP, CD, DEM, FF, IL, JPY, SF, Swedish Krone (SK) and Spanish Peseta (SP) exchange rates in the period 1975-1980. It is found that excess rates of return of filter rules persist into the 1980s, even after correcting for transaction costs and risk.
After his study on exchange rates, Sweeney (1988) focuses on a subset of the 30 stocks in the DJIA for which the 0.5% filter rule yielded the most promising results in the Fama and Blume (1966) paper, which comprehends the 1956-1962 period. He finds that by focusing on the winners in the previous period of the Fama and Blume (1966) paper significant profits over the buy-and-hold can be made for all selected stocks in the period 1970-1982 by investors with low but feasible transaction costs, most likely floor traders. Sweeney (1988) questions why the market seems to be weak-form inefficient according to his results. Sweeny argues that the costs of a seat on an exchange are just the risk-adjusted present value of the profits that could be made. Another possibility is that if a trader tries to trade according to a predefined trading strategy, he can move the market itself and therefore cannot reap the profits. Finally Sweeney (1988) concludes that excess return may be the reward for putting in the effort for finding the rule which can exploit irregularities. Hence after correcting for research costs the market may be efficient in the end.
Schulmeister (1988) observes that USD/DEM exchange rate movements are characterized by a sequence of upward and downward trends in the period March 1973 to March 1988. For two moving averages, two momentum strategies, two combinations of moving averages and momentum and finally one support-and-resistance rule, reported to be widely used in practice, it is concluded that they yield systematically and significant profits. Schulmeister (1988) remarks that the combined strategy is developed and truly applied in trading by Citicorp. No correction is made for transaction costs and interest rate differentials. However, for the period October 1986 through March 1988 a reduction in profits is noticed, which is explained by the stabilizing effects of the Louvre accord of February 22, 1987. The goal of this agreement was to keep the USD/DEM/JPY exchange rates stable. The philosophy behind the accord was that when those three key currencies were stable, then the other currencies of the world could link into the system and world currencies could more or less stabilize, reducing currency risks in foreign trade.