Testing the Profitability of Technical Analysis as a Portfolio Selection Strategy

Vlad Pavlov and Stan Hurn

No 52, NCER Working Paper Series from National Centre for Econometric Research

Abstract: One of the main diffculties in evaluating the profits obtained using technical analysis is that trading rules are often specifed rather vaguely by practitioners and depend upon the judicious choice of rule parameters. In this paper, popular moving-average (or cross-over) rules are applied to a cross-section of Australian stocks and the signals from the rules are used to form portfolios. The performance of the trading rules across the full range of possible parameter values is evaluated by means of an aggregate test that does not depend on the parameters of the rules. The results indicate that for a wide range of parameters moving-average rules generate contrarian profits (profits from the moving-average rules are negative). In bootstrap simulations the returns statistics are significant indicating that the moving-average rules pick up some form of systematic variation in returns that does not correlate with the standard risk factors.

Keywords: Stock returns; Technical analysis; Momentum trading rules; Bootstrapping. (search for similar items in EconPapers)
JEL-codes: C22 C53 Q49 (search for similar items in EconPapers)
Pages: 31
Date: 2009-12-09
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:qut:auncer:2009_65

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