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

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Title		Technical trading revisited: false discoveries,persistence tests, and transaction costs
Authors		Scaillet, Olivier Bajgrowicz, Pierre
Published in		Journal of Financial Economics. 2012, vol. 106, 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 o set 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 Trading — False discovery rate — Persistence — Transaction costs
Full text		Article (Author postprint) (989 Kb) - Free access
Structures		Faculté d'économie et de management / Geneva Finance Research Institute
Citation (ISO format)		SCAILLET, Olivier, BAJGROWICZ, Pierre. Technical trading revisited: false discoveries,persistence tests, and transaction costs. In: Journal of Financial Economics, 2012, vol. 106, p. 473-491. https://archive-ouverte.unige.ch/unige:85618