By Sergei Belov, Ernest Chan, Nahid Jetha, and Akshay Nautiyal ABSTRACT We applied Corrective AI (Chan, 2022) to a trading model that takes advantage of the intraday seasonality of forex returns. Breedon and Ranaldo (2012) observed that foreign currencies depreciate vs. the US dollar during their local working hours and appreciate during the local working hours of the US dollar. We first backtested the results of Breedon and Ranaldo on recent EURUSD data from September 2021 to January 2023 and then applied Corrective AI to this trading strategy to achieve a significant increase in performance. Breedon and Ranaldo (2012) described a trading strategy that shorted EURUSD during European working hours (3 AM ET to 9 AM ET, where ET denotes the local time in New York, accounting for daylight savings) and bought EURUSD during US working hours (11 AM ET to 3 PM ET). The rationale is that large-scale institutional buying of the US dollar takes place during European working hours to pa
Floyd Norris, the chief financial correspondent of The New York Times, suggested in his blog today that we are looking at "The Beginning of the End for High Oil Prices". What is the basis of his optimism? He argued that oil stocks have been lagging oil prices lately, and therefore equity investors must believe that high oil prices are causing demand destruction which will eventually reduce oil prices and oil companies earnings. I beg to differ. Look at the long-standing spread relation between an oil stock ETF and an oil commodity ETF, e.g. XLE vs USO, which I have been commenting on and tracking since October 2006 . At the moment, this spread is within 1.4 standard deviations of its historical value. See my table here (subscription required). In other words, oil prices and oil stock prices are at approximately their long-time historical average. I would hardly call that suggestive of the beginning of the end.