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Tactical asset allocation on technical trading rules and data snooping

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  • Yang, Junmin
  • Cao, Zhiguang
  • Han, Qiheng
  • Wang, Qiyu

Abstract

In this paper, we investigate the performance of tactical asset allocation on technical trading rules controlling for data snooping bias. By using reality check (RC), superior predictive ability (SPA) test and their extensions, and false discovery rate (FDR), we find that none of 15376 technical trading rules at monthly frequency outperforms buy-and-hold (B&H) strategy in terms of 1/N portfolio. In addition, we also investigate the performance of tactical asset allocation in terms of other usual portfolio strategies: minimum variance portfolio (MVP), tangency portfolio (TP), equally weighted risk contribution portfolio (ERCP), most diversified portfolio (MDP), Volatility timing portfolio (VTP) and Reward-to-risk timing portfolio (RRTP). Our empirical study shows that no tactical asset allocation strategies on technical trading rules outperform B&H benchmark. Our findings call into question the value of tactical asset allocation on technical trading rules.

Suggested Citation

  • Yang, Junmin & Cao, Zhiguang & Han, Qiheng & Wang, Qiyu, 2019. "Tactical asset allocation on technical trading rules and data snooping," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:pacfin:v:57:y:2019:i:c:s0927538x18300775
    DOI: 10.1016/j.pacfin.2018.08.003
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    2. Yafeng Qin & Guoyao Pan & Min Bai, 2020. "Improving market timing of time series momentum in the Chinese stock market," Applied Economics, Taylor & Francis Journals, vol. 52(43), pages 4711-4725, September.
    3. Yusuf Olatunji Oyedeko & Olusola Segun Kolawole & Regina Samson & Olena Voloshyna, 2023. "Moderating Effect of Tactical Asset Allocation on the Risk-Return Relationship in the Nigerian Stock Market," Oblik i finansi, Institute of Accounting and Finance, issue 2, pages 83-91, June.

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    More about this item

    Keywords

    RC; SPA; FDR; Tactical Asset allocation;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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