Chapter 4 Expected returns of directional forecasters

EMMANUEL. ACAR

4.1 INTRODUCTION

An important area not yet covered in the literature is an assessment of the proifitability of directional forecasters. Can non-zero profit be expected in financial markets from such methods, and if so, what are the parameters of the underlying price process which make the rule profitable? The aim of this paper is to specify the theoretical relationship between rule returns and standard statistical measures of serial dependency. Such a specification, although not pursued in previous research, is useful because rule returns provide a measure of economic significance for serial dependencies in financial returns that otherwise might not be readily interpretable. ...

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