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Data-Snooping, Technical Trading, Rule Performance and the Bootstrap

  • Allan Timmermann


  • Halbert White
  • Ryan Sullivan

�In this paper we utilize Whites Reality Check bootstrap methodology (White (1997)) to evaluate simple technical trading rules while quantifying the data-snooping bias and fully adjusting for its effect inthe context of the full universe form which the trading rules are drawn. Henxe, for the first time, the paper presents a comrehensive test of perfomance across all technical trading rules examined. We consider the study of brock, Lakonishok and LeBaron (1992), expand their universe of 26 trading rules, apply the rules to 100 years of daily data on the Dow Jone Industrial Average, and determine the effects of data-snooping.

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Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp303.

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Date of creation: Sep 1998
Date of revision:
Handle: RePEc:fmg:fmgdps:dp303
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  1. Foster, F Douglas & Smith, Tom & Whaley, Robert E, 1997. " Assessing Goodness-of-Fit of Asset Pricing Models: The Distribution of the Maximal R-Squared," Journal of Finance, American Finance Association, vol. 52(2), pages 591-607, June.
  2. Wang, Jiang & Grossman, Sanford & Campbell, John, 1993. "Trading Volume and Serial Correlation in Stock Returns," Scholarly Articles 3128710, Harvard University Department of Economics.
  3. Kenneth D. West, 1994. "Asymptotic Inference About Predictive Ability," Macroeconomics 9410002, EconWPA.
  4. Andrew W. Lo & A. Craig MacKinlay, 1989. "Data-Snooping Biases in Tests of Financial Asset Pricing Models," NBER Working Papers 3001, National Bureau of Economic Research, Inc.
  5. Brock, W. & Lakonishok, J. & Lebaron, B., 1991. "Simple Technical Trading Rules And The Stochastic Properties Of Stock Returns," Working papers 90-22, Wisconsin Madison - Social Systems.
  6. Jensen, Michael C & Bennington, George A, 1970. "Random Walks and Technical Theories: Some Additional Evidence," Journal of Finance, American Finance Association, vol. 25(2), pages 469-82, May.
  7. Taylor, Mark P. & Allen, Helen, 1992. "The use of technical analysis in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 11(3), pages 304-314, June.
  8. Levich, Richard M. & Thomas, Lee III, 1993. "The significance of technical trading-rule profits in the foreign exchange market: a bootstrap approach," Journal of International Money and Finance, Elsevier, vol. 12(5), pages 451-474, October.
  9. Stephen J. Taylor, 1994. "Trading futures using a channel rule: A study of the predictive power of technical analysis with currency examples," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 14(2), pages 215-235, 04.
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