Abstract

http://ssrn.com/abstract=6140
 


 



Is Research On Trading Rules Implementable? The Case Of Short-Term Contrarian Strategies


Ray Ball


University of Chicago

S.P. Kothari


Massachusetts Institute of Technology (MIT) - Sloan School of Management

Charles E. Wasley


University of Rochester - Simon Business School


Simon School of Business Working Paper FR 94-02

Abstract:     
Research on trading rule profitability usually simulates trading on historical data. These data usually are obtained from files such as CRSP, which estimate closing prices as the last trade (at the closing bid or the closing ask, or neither), or the bid-ask average (in the absence of a last trade). A trading rule could not normally be implemented at these prices, for even a smaller number of shares. A simulated contrarian strategy transforms noise in closing price estimates into return biases, by buying at predominantly bid prices and shorting at ask, which is not implementable for most investors. The bias in estimated contrarian portfolio returns is severe. For example, when returns are calculated from successive bid prices of NASDAQ stocks, short-term contrarian profits largely disappear

JEL Classification: G1

working papers series


Not Available For Download

Date posted: December 20, 1998  

Suggested Citation

Ball, Ray and Kothari, S.P. and Wasley, Charles E., Is Research On Trading Rules Implementable? The Case Of Short-Term Contrarian Strategies. Simon School of Business Working Paper FR 94-02. Available at SSRN: http://ssrn.com/abstract=6140

Contact Information

Ray Ball (Contact Author)
University of Chicago ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-5941 (Phone)
773-702-0458 (Fax)
S.P. Kothari
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
E52-325
Cambridge, MA 02142
United States
617-253-0994 (Phone)
617-253-0603 (Fax)
Charles E. Wasley
University of Rochester - Simon Business School ( email )
Rochester, NY 14627
United States
585-275-3362 (Phone)
585-442-6323 (Fax)
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