Asymmetric Stationarity in National Stock Market Indices: An MTAR Analysis

James K. Self
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James K. Self: Indiana University–Bloomington

Journal of Business, 2006, vol. 79, issue 6, pages 3153-3174

Abstract: A procedure is developed using a momentum threshold autoregressive model and asymmetric stationarity tests designed to identify periods of asymmetric stationary divergences from nonstationary paths in time series and is applied to major national stock indices. The results reveal the existence of asymmetric stationary periods in each of these indices. These results suggest an explanation for the counterintuitive positive forecasting results of technical traders for various time periods. We explore this possibility further by using a representative moving average technical trading strategy and find significantly different results (higher returns) when information from the procedure is incorporated into a trading rule.

Date: 2006

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