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Title

Technical trading revisited: False discoveries, persistence tests, and transaction costs

Authors
Bajgrowicz, Pierre
Published in Journal of Financial Economics. 2012, vol. 106, no. 3, p. 473-491
Abstract We revisit the apparent historical success of technical trading rules on daily prices of the DJIA index from 1897 to 2011, and use the False Discovery Rate as a new approach to data snooping. The advantage of the FDR over existing methods is that it selects more outperforming rules which allows diversifying against model uncertainty. Persistence tests show that, even with the more powerful FDR technique, an investor would never have been able to select ex ante the future best-performing rules. Moreover, even in-sample, the performance is completely offset by the introduction of low transaction costs. Overall, our results seriously call into question the economic value of technical trading rules that has been reported for early periods.
Keywords Technical TradingFalse Discovery RatePersistenceTransaction Costs
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Research group Geneva Finance Research Institute (GFRI)
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BAJGROWICZ, Pierre, SCAILLET, Olivier. Technical trading revisited: False discoveries, persistence tests, and transaction costs. In: Journal of Financial Economics, 2012, vol. 106, n° 3, p. 473-491. https://archive-ouverte.unige.ch/unige:79889

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Deposited on : 2016-01-22

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