42 Pages Posted: 12 Aug 2010 Last revised: 22 May 2012
Date Written: August 27, 2011
In this paper, we document that an application of a moving average strategy of technical analysis to portfolios sorted by volatility generates investment timing portfolios that often outperform the buy-and-hold strategy substantially. For high volatility portfolios, the abnormal returns, relative to the CAPM and the Fama-French three-factor models, are high, and higher than those from the well known momentum strategy. The abnormal returns remain high even after accounting for transaction costs. Although both the moving average and the momentum strategies are trend-following methods, their performances are surprisingly uncorrelated and behave differently over the business cycles, default and liquidity risk.
Keywords: Technical Analysis, Moving Average, Anomaly, Market Timing
JEL Classification: G11, G12, G14, C11, C61
Suggested Citation: Suggested Citation
Han, Yufeng and Yang, Ke and Zhou, Guofu, A New Anomaly: The Cross-Sectional Profitability of Technical Analysis (August 27, 2011). Available at SSRN: https://ssrn.com/abstract=1656460 or http://dx.doi.org/10.2139/ssrn.1656460