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Simple Technical Trading Rules And The Stochastic Properties Of Stock Returns

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Author Info

  • BROCK, W.
  • LAKONISHOK, J.
  • LEBARON, B.

Abstract

This paper tests two of the simplest and most popular trading rules--moving average and trading range break--by utilizing the Dow Jones Index from 1897 to 1986. Standard statistical analysis is extended through the use of bootstrap techniques. Overall, their results provide strong support for the technical strategies. The returns obtained from these strategies are not consistent with four popular null models: the random walk, the AR(1), the GARCH-M, and the Exponential GARCH. Buy signals consistently generate higher returns than sell signals, and further, the returns following buy signals are less volatile than returns following sell signals. Moreover, returns following sell signals are negative, which is not easily explained by any of the currently existing equilibrium models. Copyright 1992 by American Finance Association.

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Bibliographic Info

Paper provided by Wisconsin Madison - Social Systems in its series Working papers with number 90-22.

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Length: 31 pages
Date of creation: 1991
Date of revision:
Handle: RePEc:att:wimass:90-22

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Postal: UNIVERSITY OF WISCONSIN MADISON, SOCIAL SYSTEMS RESEARCH INSTITUTE(S.S.R.I.), MADISON WISCONSIN 53706 U.S.A.

Related research

Keywords: statistical analysis ; prices ; supply and demand ; trade;

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  1. Golden Crosses: The Bible
    by Joshua M Brown in The Reformed Broker on 2012-03-22 15:24:46
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