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Further Out-of-Sample Tests of Simple Technical Trading Rules

Numan Ülkü

Istanbul Stock Exchange Review, 2009, vol. 11, issue 41, 25-44

Abstract: The intriguing findings by Brock, Lakonishok, and LeBaron (1992, BLL hereafter), that some simple technical trading rules were profitable on Dow Jones Industrial Average (DJIA), have been replicated in many other markets with similar results, and triggered debate on market efficiency. In this study, I test the profitability of these rules i) on more recent DJIA data to see if their profitability survives out-of-sample and is robust to publicity and presence of an index futures market, ii) on the Istanbul Stock Exchange (ISE), which enables useful comparisons. Results suggest that the profitability of the technical rules tested by BLL have recently disappeared on DJIA, and that these rules have performed better on the ISE-100 index. I notice one exception which BLL overlooked: The 22-day simple moving average rule, which has been widely used by short-term traders, still performs positively on DJIA and produces significantly positive profits on the ISE-100 index, even after transaction costs. I use results on these samples with contrasting characteristics to develop hypotheses on the determinants of the profitability of these simple technical trading rules.

Keywords: simple technical trading rules; out-of-sample tests; economic significance; ISE-100 index (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Date: 2009
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