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Drivers of technical trend-following rules' profitability in world stock markets

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  • Ülkü, Numan
  • Prodan, Eugeniu

Abstract

Testing short-horizon technical trend-following rules, including the first comprehensive evidence on the relatively-neglected MACD rule, on a large panel of world stock market indexes, we investigate the determinants of technical trading rule profitability. The main driver of trend-following rules' profitability is return persistence, which, in turn, is negatively related to market development. Return volatility adds to technical rule profitability. A new result is that the presence of an index futures market lowers profits to short-horizon trend-following rules after controlling for other indicators of market development. This may reflect the role of transaction costs as a friction retarding incorporation of information.

Suggested Citation

  • Ülkü, Numan & Prodan, Eugeniu, 2013. "Drivers of technical trend-following rules' profitability in world stock markets," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 214-229.
  • Handle: RePEc:eee:finana:v:30:y:2013:i:c:p:214-229
    DOI: 10.1016/j.irfa.2013.08.005
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    Cited by:

    1. repec:eee:glofin:v:40:y:2019:i:c:p:85-103 is not listed on IDEAS
    2. Terence Tai-Leung Chong & Wing-Kam Ng & Venus Khim-Sen Liew, 2014. "Revisiting the Performance of MACD and RSI Oscillators," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 7(1), pages 1-12, February.
    3. repec:eee:quaeco:v:66:y:2017:i:c:p:115-126 is not listed on IDEAS

    More about this item

    Keywords

    Technical trend-following rules; Drivers of technical trading rule profitability; Transaction costs; Index futures; Market efficiency;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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