Markowitz meets technical analysis: Building optimal portfolios by exploiting information in trend-following signals
Andre Santos () and
Hudson S. Torrent
Finance Research Letters, 2022, vol. 49, issue C
Abstract:
Technical indicators are widely used by market participants to identify trends in asset prices and in trading volumes. However, it is unclear how to reconcile this approach with a portfolio selection policy that guide investment decisions in many assets at the same time. We bridge the gap between Markowitz approach to mean–variance portfolios and technical analysis by devising a portfolio strategy in which optimal weights are directly parameterized as a function of multiple trend-following signals. We present an empirical application in which four commonly used technical indicators are employed to obtain portfolios of all constituents of the S&P500 index.
Keywords: Bootstrap; Parametric portfolios; Risk-adjusted performance; Transaction costs (search for similar items in EconPapers)
JEL-codes: B26 C58 G11 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:49:y:2022:i:c:s1544612322002963
DOI: 10.1016/j.frl.2022.103063
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