Drivers of technical trend-following rules' profitability in world stock markets

Numan Ülkü and Eugeniu Prodan

International Review of Financial Analysis, 2013, vol. 30, issue C, 214-229

Abstract: Testing short-horizon technical trend-following rules, including the first comprehensive evidence on the relatively-neglected MACD rule, on a large panel of world stock market indexes, we investigate the determinants of technical trading rule profitability. The main driver of trend-following rules' profitability is return persistence, which, in turn, is negatively related to market development. Return volatility adds to technical rule profitability. A new result is that the presence of an index futures market lowers profits to short-horizon trend-following rules after controlling for other indicators of market development. This may reflect the role of transaction costs as a friction retarding incorporation of information.

Keywords: Technical trend-following rules; Drivers of technical trading rule profitability; Transaction costs; Index futures; Market efficiency (search for similar items in EconPapers)
JEL-codes: G14 G15 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:30:y:2013:i:c:p:214-229

DOI: 10.1016/j.irfa.2013.08.005

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