IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

“Ombro-Cabeça-Ombro”: Testando a Lucratividade do Padrão Gráfico de Análise Técnica no Mercado de Ações Brasileiro
[Head and Shoulder: testing the profitability of graphic pattern of technical analysis for the Brazilian Stock Exchange]

  • Boainain, Pedro G.
  • Valls Pereira, Pedro L.

Starting from an adapted version of Osler and Chang (1995) methodology, this article empirically evaluates the profitability of investment strategies based on identification of the Head and Shoulders chart pattern in the Brazilian stock market. For that purpose, several investment strategies conditioned by the identification of the Head and Shoulders pattern (in its basic and inverted forms) by a computer algorithm in daily price series of 30 stocks from January 1994 to January 2009 were defined. Confidence intervals consistent with the null hypothesis that no strategies with positive returns can be based only on historical data were constructed using the Bootstrap sample inference technique in order to test the predictive power of each strategy. More specifically, the mean returns obtained by each strategy when applied to the stock’s price series were compared to those obtained by the same strategies when applied to 1.000 artificial price series - for each stock - generated in a parametric manner, by an E-GARCH, and in a nonparametric one. Overall, our results show that it is possible to create strategies conditioned by the occurrence of Head and Shoulders, with positive returns, which indicates that these patterns can capture from stock historical prices some signals about their future price trend that makes possible to create profitable strategies. Nevertheless, the same conclusions are not valid for the pattern in its inverted form and when the effects of taxes and transaction costs are considered, depending on their magnitude, neither in its basic form.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://mpra.ub.uni-muenchen.de/15653/1/MPRA_paper_15653.pdf
File Function: original version
Download Restriction: no

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15653.

as
in new window

Length:
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:pra:mprapa:15653
Contact details of provider: Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Jensen, Michael C., 1978. "Some anomalous evidence regarding market efficiency," Journal of Financial Economics, Elsevier, vol. 6(2-3), pages 95-101.
  2. Torres, Ricardo & Bonomo, Marco Antonio Cesar & Fernandes, Cristiano, 2002. "A Aleatoriedade do Passeio na Bovespa: Testando a Eficiência do Mercado Acionário Brasileiro," Revista Brasileira de Economia, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 56(2), April.
  3. Andrew W. Lo & Harry Mamaysky & Jiang Wang, 2000. "Foundations of Technical Analysis: Computational Algorithms, Statistical Inference, and Empirical Implementation," Journal of Finance, American Finance Association, vol. 55(4), pages 1705-1770, 08.
  4. C.L. Osler & P.H. Kevin Chang, 1995. "Head and shoulders: not just a flaky pattern," Staff Reports 4, Federal Reserve Bank of New York.
  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, vol. 47(5), pages 1731-64, December.
  6. Cajueiro, Daniel O. & Tabak, Benjamin M., 2005. "Possible causes of long-range dependence in the Brazilian stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 345(3), pages 635-645.
  7. Cajueiro, Daniel O. & Tabak, Benjamin M. & Souza, Nathalia A., 2005. "Periodic market closures and the long-range dependence phenomena in the Brazilian equity market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 351(2), pages 512-522.
  8. Baptista, Ricardo Fuscaldi de Figueiredo & Pereira, Pedro Luiz Valls, 2009. "Análise do desempenho de regras da análise técnica aplicada ao mercado intradiário do contrato futuro do índice Ibovespa," Textos para discussão 173, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
  9. Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
  10. Cheol-Ho Park & Scott H. Irwin, 2007. "What Do We Know About The Profitability Of Technical Analysis?," Journal of Economic Surveys, Wiley Blackwell, vol. 21(4), pages 786-826, 09.
  11. repec:fgv:epgrbe:v:57:n:4:a:13 is not listed on IDEAS
  12. 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.
  13. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
  14. repec:fgv:epgrbe:v:56:n:2:a:2 is not listed on IDEAS
  15. Chang, Eui Jung & Lima, Eduardo Jose Araujo & Tabak, Benjamin Miranda, 2004. "Testing for predictability in emerging equity markets," Emerging Markets Review, Elsevier, vol. 5(3), pages 295-316, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:15653. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.