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PPT Slide C) Structure of the rules: The interest differential and not the
past exchange rate series is the most important informational input to the trading rule.
1) Example: “Go long if the interest differential (British
minus German) is greater than 4.42 per cent.”
a) This simple rule was the 28th best out-of-sample for the DEM/GBP,
having an excess return of 3.32 per cent per year and a correlation of 0.95 with the median
rule.
2) Moving average and filter rules did not do well. 3) High interest rate and mean reversion rules did not do well.
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