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A Non-Random Walk down Canary Wharf

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  • Canegrati, Emanuele

Abstract

In this paper I perform a panel data analysis to evaluate whether �- nancial technical indicators are able to predict stock market returns. By using a panel of 40 stocks taken from the Financial Times Stock Exchange (FTSE) observed in 2004, I test the ability of 75 amongst the most famous technical indicators used by traders to predict next-day returns. Surpris- ingly, results are robust in demonstrating that many of these are good predictors, supporting the validity of the technical analysis.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9871.

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Date of creation: 06 Aug 2008
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Handle: RePEc:pra:mprapa:9871

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Keywords: technical analysis; random walk hypothesis; econometrics finance;

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  1. Nerlove, Marc, 1971. "A Note on Error Components Models," Econometrica, Econometric Society, Econometric Society, vol. 39(2), pages 383-96, March.
  2. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, American Finance Association, vol. 25(2), pages 383-417, May.
  3. Kang, Suk, 1985. "A note on the equivalence of specification tests in the two-factor multivariate variance components model," Journal of Econometrics, Elsevier, Elsevier, vol. 28(2), pages 193-203, May.
  4. Mitchell A. Petersen, 2005. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," NBER Working Papers 11280, National Bureau of Economic Research, Inc.
  5. Brock, William & Lakonishok, Josef & LeBaron, Blake, 1992. " Simple Technical Trading Rules and the Stochastic Properties of Stock Returns," Journal of Finance, American Finance Association, American Finance Association, vol. 47(5), pages 1731-64, December.
  6. Carol Osler, 2000. "Support for resistance: technical analysis and intraday exchange rates," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Jul, pages 53-68.
  7. Taylor, Mark P. & Allen, Helen, 1992. "The use of technical analysis in the foreign exchange market," Journal of International Money and Finance, Elsevier, Elsevier, vol. 11(3), pages 304-314, June.
  8. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
  9. Arellano, M, 1987. "Computing Robust Standard Errors for Within-Groups Estimators," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(4), pages 431-34, November.
  10. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, Econometric Society, vol. 46(6), pages 1429-45, November.
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