Technical Trading Revisited: False Discoveries, Persistence Tests, and Transaction Costs

Pierre Bajgrowicz and Olivier Scaillet
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Pierre Bajgrowicz: University of Geneva

No 08-05, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We revisit the apparent historical success of technical trading rules on daily prices of the DJIA from 1897 to 2008. We use the False Discovery Rate as a new approach to data snooping. The advantage of the FDR over existing methods is that it selects more outperforming rules and di- versi es against model uncertainty. Persistence tests show that an investor would never have been able to select ex ante the future best-performing rules. Moreover, even the in-sample performance is completely o set by the introduction of transaction costs. Overall, our results seriously call into question the economic value of technical trading rules.

Keywords: Technical Trading; False Discovery Rate; Persistence; Transaction Costs. (search for similar items in EconPapers)
JEL-codes: C12 C15 G11 G14 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2008-05, Revised 2009-07
New Economics Papers: this item is included in nep-cba, nep-mst and nep-ore
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Related works:
Journal Article: Technical trading revisited: False discoveries, persistence tests, and transaction costs (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp0805

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