Advanced Search
MyIDEAS: Login to save this article or follow this journal

Reexamining the Profitability of Technical Analysis with Data Snooping Checks

Contents:

Author Info

  • Po-Hsuan Hsu
  • Chung-Ming Kuan

Abstract

In this article we reexamine the profitability of technical analysis using White's reality check and Hansen's SPA test that correct the data snooping bias. Compared to previous studies, we study a more complete "universe" of trading techniques, including not only simple rules but also complex trading strategies, and we test the profitability of these rules and strategies with four main indices. It is found that significantly profitable simple rules and complex trading strategies do exist in the data from relatively "young" markets (NASDAQ Composite and Russell 2000) but not in the data from relatively "mature" markets [Dow Jones Industrial Average (DJIA) and S&P 500]. Moreover, after taking transaction costs into account, we find that the best rules for NASDAQ Composite and Russell 2000 outperform the buy-and-hold strategy in most in- and out-of-sample periods. It is also found that complex trading strategies are able to improve on the profits of simple rules and may even generate significant profits from unprofitable simple rules. Copyright 2005, Oxford University Press.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hdl.handle.net/10.1093/jjfinec/nbi026
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Society for Financial Econometrics in its journal Journal of Financial Econometrics.

Volume (Year): 3 (2005)
Issue (Month): 4 ()
Pages: 606-628

as in new window
Handle: RePEc:oup:jfinec:v:3:y:2005:i:4:p:606-628

Contact details of provider:
Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
Fax: 01865 267 985
Email:
Web page: http://jfec.oxfordjournals.org/
More information through EDIRC

Order Information:
Web: http://www.oup.co.uk/journals

Related research

Keywords:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Isakov, Dusan & Marti, Didier, 2011. "Technical Analysis with a Long-Term Perspective: Trading Strategies and Market Timing Ability," FSES Working Papers, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland 421, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
  2. Dan Anghel, 2013. "How Reliable is the Moving Average Crossover Rule for an Investor on the Romanian Stock Market?," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 5(2), pages 089-115, December.
  3. Pei Kuang & M. Schröder & Q. Wang, 2013. "Illusory Profitability of Technical Analysis in Emerging Foreign Exchange Markets," CDMA Working Paper Series, Centre for Dynamic Macroeconomic Analysis 201302, Centre for Dynamic Macroeconomic Analysis.
  4. Shynkevich, Andrei, 2012. "Short-term predictability of equity returns along two style dimensions," Journal of Empirical Finance, Elsevier, Elsevier, vol. 19(5), pages 675-685.
  5. Charles, Amélie & Darné, Olivier & Kim, Jae H., 2012. "Exchange-rate return predictability and the adaptive markets hypothesis: Evidence from major foreign exchange rates," Journal of International Money and Finance, Elsevier, Elsevier, vol. 31(6), pages 1607-1626.
  6. Martin Scholtus & Dick van Dijk, 2012. "High-Frequency Technical Trading: The Importance of Speed," Tinbergen Institute Discussion Papers, Tinbergen Institute 12-018/4, Tinbergen Institute.
  7. Menkhoff, Lukas & Taylor, Mark P., 2006. "The Obstinate Passion of Foreign Exchange Professionals: Technical Analysis," Hannover Economic Papers (HEP), Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät dp-352, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  8. Bekiros, Stelios D., 2013. "Irrational fads, short-term memory emulation, and asset predictability," Review of Financial Economics, Elsevier, Elsevier, vol. 22(4), pages 213-219.
  9. Shynkevich, Andrei, 2013. "Time-series momentum as an intra- and inter-industry effect: Implications for market efficiency," Journal of Economics and Business, Elsevier, Elsevier, vol. 69(C), pages 64-85.
  10. Hsu, Po-Hsuan & Hsu, Yu-Chin & Kuan, Chung-Ming, 2010. "Testing the predictive ability of technical analysis using a new stepwise test without data snooping bias," Journal of Empirical Finance, Elsevier, Elsevier, vol. 17(3), pages 471-484, June.
  11. Shynkevich, Andrei, 2012. "Performance of technical analysis in growth and small cap segments of the US equity market," Journal of Banking & Finance, Elsevier, Elsevier, vol. 36(1), pages 193-208.
  12. Pierre Bajgrowicz & Olivier Scaillet, 2007. "Technical Trading Revisited: False Discoveries, Persistence Tests, and Transaction Costs," Swiss Finance Institute Research Paper Series, Swiss Finance Institute 08-05, Swiss Finance Institute, revised Jul 2009.
  13. Nomikos, Nikos K. & Doctor, Kaizad, 2013. "Economic significance of market timing rules in the Forward Freight Agreement markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, Elsevier, vol. 52(C), pages 77-93.
  14. Qingwei Wang, 2010. "Sentiment, Convergence of Opinion, and Market Crash," Working Papers, Bangor Business School, Prifysgol Bangor University (Cymru / Wales) 10012, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  15. Bekiros, Stelios D., 2010. "Heterogeneous trading strategies with adaptive fuzzy Actor-Critic reinforcement learning: A behavioral approach," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 34(6), pages 1153-1170, June.
  16. Bertrand B. Maillet & Jean-Philippe R. Médecin, 2010. "Extreme Volatilities, Financial Crises and L-moment Estimations of Tail-indexes," Working Papers, Department of Economics, University of Venice "Ca' Foscari" 2010_10, Department of Economics, University of Venice "Ca' Foscari".
  17. Lu, Tsung-Hsun, 2014. "The profitability of candlestick charting in the Taiwan stock market," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 26(C), pages 65-78.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:oup:jfinec:v:3:y:2005:i:4:p:606-628. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.