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Technical Trading Revisited: False Discoveries, Persistence Tests, and Transaction Costs

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Author Info
Pierre Bajgrowicz (University of Geneva)
Olivier Scaillet (University of Geneva and Swiss Finance Institute)

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Abstract

We revisit the apparent historical success of technical trading rules on daily prices of the DJIA from 1897 to 2008. We use the False Discovery Rate as a new approach to data snooping. The advantage of the FDR over existing methods is that it selects more outperforming rules and di- versi es against model uncertainty. Persistence tests show that an investor would never have been able to select ex ante the future best-performing rules. Moreover, even the in-sample performance is completely o set by the introduction of transaction costs. Overall, our results seriously call into question the economic value of technical trading rules.

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File URL: http://ssrn.com/abstract=1095202
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Publisher Info
Paper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 08-05.

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Length: 57 pages
Date of creation: May 2007
Date of revision: Jul 2009
Handle: RePEc:chf:rpseri:rp0805

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Web page: http://www.SwissFinanceInstitute.ch
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Related research
Keywords: Technical Trading; False Discovery Rate; Persistence; Transaction Costs.;

Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

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This page was last updated on 2009-11-30.

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