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Performance of technical analysis in growth and small cap segments of the US equity market

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  • Shynkevich, Andrei
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    Abstract

    A large universe of technical trading rules applied to a set of technology industry and small cap sector portfolios over the 1995–2010 period yields superior predictability after adjusting for data snooping bias in the first half of the sample period and delivers statistically significant profits for a number of portfolios when the transaction cost is assumed to be of small to moderate size. Technical analysis is not able to outperform the buy-and-hold approach for any portfolio in the set in the second half of the sample period. The finding that the short-term return predictability becomes much weaker in the more recent period suggests that the underlying segments of the equity market have become more efficient over time. The fact that mechanical trading strategies have been futile after adjusting for data snooping bias for two samples of portfolios where technical analysis is most anticipated to succeed suggests that it is unlikely to have delivered abnormal returns in any other segment of the domestic equity market in the last decade.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 36 (2012)
    Issue (Month): 1 ()
    Pages: 193-208

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    Handle: RePEc:eee:jbfina:v:36:y:2012:i:1:p:193-208

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    Web page: http://www.elsevier.com/locate/jbf

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    Keywords: Technical analysis; Data snooping; Momentum; Market efficiency;

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    Cited by:
    1. Andrew Clare & James Seaton & Peter N. Smith & Stephen Thomas, 2013. "The Trend is Our Friend: Risk Parity, Momentum and Trend Following in Global Asset Allocation," CAMA Working Papers 2013-24, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    2. Yamamoto, Ryuichi, 2012. "Intraday technical analysis of individual stocks on the Tokyo Stock Exchange," Journal of Banking & Finance, Elsevier, vol. 36(11), pages 3033-3047.

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