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A Reality Check on Technical Trading Rule Profits in US Futures Markets

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  • Park, Cheol-Ho
  • Irwin, Scott H.

Abstract

This paper investigates the profitability of technical trading rules in US futures markets over the 1985-2004 period. To account for data snooping biases, we evaluate statistical significance of performance across technical trading rules using White's Bootstrap Reality Check test and Hansen's Superior Predictive Ability test. These methods directly quantify the effect of data snooping by testing the performance of the best rule in the context of the full universe of technical trading rules. Results show that the best rules generate statistically significant economic profits only for two of 17 futures contracts traded in the US. This evidence indicates that technical trading rules generally have not been profitable in US futures markets after correcting for data snooping biases.

Suggested Citation

  • Park, Cheol-Ho & Irwin, Scott H., 2005. "A Reality Check on Technical Trading Rule Profits in US Futures Markets," 2005 Conference, April 18-19, 2005, St. Louis, Missouri 19039, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
  • Handle: RePEc:ags:ncrfiv:19039
    DOI: 10.22004/ag.econ.19039
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    File URL: http://ageconsearch.umn.edu/record/19039/files/cp05pa01.pdf
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    References listed on IDEAS

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    Cited by:

    1. Montgomery, William & Raza, Ahmad & Ülkü, Numan, 2019. "Tests of technical trading rules and the 52-week high strategy in the corporate bond market," Global Finance Journal, Elsevier, vol. 40(C), pages 85-103.
    2. Lukas Menkhoff & Mark P. Taylor, 2007. "The Obstinate Passion of Foreign Exchange Professionals: Technical Analysis," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 936-972, December.
    3. Wang, Shan & Jiang, Zhi-Qiang & Li, Sai-Ping & Zhou, Wei-Xing, 2015. "Testing the performance of technical trading rules in the Chinese markets based on superior predictive test," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 439(C), pages 114-123.
    4. Mihai Cristian Dinică & Erica Cristina (Balea) Dinică, 2015. "Testing the Weak-Form Market Eficiency of the Euronext Wheat," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 18(55), pages 25-38, March.
    5. Flavio Ivo Riedlinger & João Nicolau, 2020. "The Profitability in the FTSE 100 Index: A New Markov Chain Approach," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 27(1), pages 61-81, March.
    6. Hsu, Po-Hsuan & Taylor, Mark P, 2014. "Forty Years, Thirty Currencies and 21,000 Trading Rules: A Large-scale, Data-Snooping Robust Analysis of Technical Trading in the Foreign Exchange Market," CEPR Discussion Papers 10018, C.E.P.R. Discussion Papers.
    7. Jasdeep S. Banga & B. Wade Brorsen, 2019. "Profitability of alternative methods of combining the signals from technical trading systems," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 26(1), pages 32-45, January.
    8. Shynkevich, Andrei, 2016. "Predictability in bond returns using technical trading rules," Journal of Banking & Finance, Elsevier, vol. 70(C), pages 55-69.
    9. Han, Yufeng & Hu, Ting & Yang, Jian, 2016. "Are there exploitable trends in commodity futures prices?," Journal of Banking & Finance, Elsevier, vol. 70(C), pages 214-234.
    10. Ioana-Andreea Boboc & Mihai-Cristian Dinică, 2013. "An Algorithm for Testing the Efficient Market Hypothesis," PLOS ONE, Public Library of Science, vol. 8(10), pages 1-11, October.
    11. Hsu, Po-Hsuan & Taylor, Mark P. & Wang, Zigan, 2016. "Technical trading: Is it still beating the foreign exchange market?," Journal of International Economics, Elsevier, vol. 102(C), pages 188-208.
    12. Jying‐Nan Wang & Hung‐Chun Liu & Jiangze Du & Yuan‐Teng Hsu, 2019. "Economic benefits of technical analysis in portfolio management: Evidence from global stock markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(2), pages 890-902, April.

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