Simple Technical Trading Rules and the Stochastic Properties of Stock Returns

Simple Technical Trading Rules and the Stochastic Properties of Stock Returns ABSTRACT This paper tests two of the simplest and most popular trading rules—moving average and trading range break—by utilizing the Dow Jones Index from 1897 to 1986. Standard statistical analysis is extended through the use of bootstrap techniques. Overall, our results provide strong support for the technical strategies. The returns obtained from these strategies are not consistent with four popular null models: the random walk, the AR(1), the GARCH‐M, and the Exponential GARCH. Buy signals consistently generate higher returns than sell signals, and further, the returns following buy signals are less volatile than returns following sell signals, and further, the returns following buy signals are less volatile than returns following sell signals. Moreover, returns following sell signals are negative, which is not easily explained by any of the currently existing equilibrium models. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Simple Technical Trading Rules and the Stochastic Properties of Stock Returns

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Publisher
Wiley
Copyright
1992 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1992.tb04681.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT This paper tests two of the simplest and most popular trading rules—moving average and trading range break—by utilizing the Dow Jones Index from 1897 to 1986. Standard statistical analysis is extended through the use of bootstrap techniques. Overall, our results provide strong support for the technical strategies. The returns obtained from these strategies are not consistent with four popular null models: the random walk, the AR(1), the GARCH‐M, and the Exponential GARCH. Buy signals consistently generate higher returns than sell signals, and further, the returns following buy signals are less volatile than returns following sell signals, and further, the returns following buy signals are less volatile than returns following sell signals. Moreover, returns following sell signals are negative, which is not easily explained by any of the currently existing equilibrium models.

Journal

The Journal of FinanceWiley

Published: Dec 1, 1992

References

  • Does the stock market overreact?
    Bondt, Bondt; Thaler, Thaler
  • Evidence of predictable behavior of securities returns
    Jegadeesh, Jegadeesh
  • Random walks and technical theories: Some additional evidences
    Jensen, Jensen; Bennington, Bennington
  • Relative strength as a criterion for investment selection
    Levy, Levy

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