A General Test of a Filter Effect

P. D. Praetz

Journal of Financial and Quantitative Analysis, 1979, vol. 14, issue 2, 385-394

Abstract: This paper develops an exact theoretical test of the presence or absence of a filter effect for a portfolio of securities and a general number of different filter sizes. It is a natural development from Praetz [8], which obtained exact expressions for the mean and variance of rates of return of the investment strategies under filter tests assuming the underlying stochastic process is a random walk. These expressions showed that expected returns from filter strategies are, in fact, less than the return from a buy-andhold alternative with which filter returns are usually compared.

Date: 1979
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