Panel A of table 2.4 shows the results of the best five technical trading strategies applied to the LIFFE cocoa series in the period 83:1-97:6. Now the best five strategies consist entirely of moving-average trading strategies. The best strategy is a MA strategy that compares the price series with a 40-day MA. The strategy is extended with a 0.5 %-band filter. The results of the mean daily excess returns and the mean daily buy and sell returns are similar to the CSCE cocoa series in the same period, but the mean excess returns are higher and the t-ratios show that the results are strongly significant. The results for the number of trades with a strictly positive excess return differ. Now in most cases 20-40% of the buy and sell trades generate an excess return, but these trades consists of more than 70% of the total number of buy and sell days. Thus most of the time the strategies are making a positive excess return, but there are a lot of short run trades that make a loss.
Also for the three subperiods of the LIFFE series it is found that the best strategies perform better than the best strategy applied to the total period. But for the three subperiods the best five strategies generate buy and sell trades that are in more than 50% of the cases profitable and these trades consist of more than 70% of the total number of buy and sell days in most cases. The above results show that also for the LIFFE series the best five strategies have an economically and statistically significant forecasting power in all periods.
Table 2.5 shows the results of the best technical trading strategies applied to the Pound-Dollar exchange rate for the full sample. The best strategy is a 100 day trading range break-out rule with a one %-band filter and a 50 day fixed holding period. This strategy has a mean daily excess return of 0.007% (1.64% yearly). The mean daily return during buy (sell) days of the Pound-Dollar series itself is equal to 0.161% (-0.017%), which corresponds to 50% (-4.2%) on a yearly basis. The mean daily buy return is significantly positive in all cases, but the mean daily sell return is not significantly negative for most of the best five strategies. The mean buy-sell difference is significantly positive for all best five strategies and for the best strategy equal to 0.178% (56.6% yearly). All strategies generate buy trades with a strictly positive excess return in more than 50% of the cases, and these trades consist of more than 50% of the total number of buy days. The percentage of sell trades with a strictly positive excess return is equal to zero, because in the case of a sell trade, the domestic currency is bought and the domestic interest rate is earned. Hence the excess return during sell days is always equal to zero. The results for all three subperiods are similar. Thus also in the case of the Pound-Dollar exchange rate the results show that the best five technical trading strategies have an economically and statistically significantly forecasting power. However the mean daily excess returns of