Testing the Profitability of Technical Analysis as a Portfolio Selection Strategy
AbstractOne of the main diffculties in evaluating the profits obtained using technical analysis is that trading rules are often specifed rather vaguely by practitioners and depend upon the judicious choice of rule parameters. In this paper, popular moving-average (or cross-over) rules are applied to a cross-section of Australian stocks and the signals from the rules are used to form portfolios. The performance of the trading rules across the full range of possible parameter values is evaluated by means of an aggregate test that does not depend on the parameters of the rules. The results indicate that for a wide range of parameters moving-average rules generate contrarian profits (profits from the moving-average rules are negative). In bootstrap simulations the returns statistics are significant indicating that the moving-average rules pick up some form of systematic variation in returns that does not correlate with the standard risk factors.
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Bibliographic InfoPaper provided by National Centre for Econometric Research in its series NCER Working Paper Series with number 52.
Date of creation: 09 Dec 2009
Date of revision:
Stock returns; Technical analysis; Momentum trading rules; Bootstrapping.;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- Q49 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-12-19 (All new papers)
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