Predictability of the Simple Technical Trading Rules: An Out-of-Sample Test

29 Pages Posted: 25 May 2012 Last revised: 14 Jun 2012

See all articles by Jiali Fang

Jiali Fang

Massey University - School of Economics and Finance

Ben Jacobsen

Tilburg University - TIAS School for Business and Society; Massey University

Yafeng Qin

Massey University

Date Written: June 13, 2012

Abstract

In a true out of sample test we find no evidence that several well-known technical trading strategies predict stock markets over the period of 1987 to 2011. Our test is free of the sample selection bias, data mining, hindsight bias, or any of the other usual biases that may affect results in our field. We use the exact same technical trading rules that Brock, Lakonishok and LeBaron (1992) showed to work best in their historical sample. Further analysis shows that this poor out-of-sample performance most likely is not due to the market becoming more efficient - instantaneously or gradually over time - but probably a result of bias.

Keywords: Technical Analysis, Return Predictability, Out-of-Sample Test

JEL Classification: G10, E20

Suggested Citation

Fang, Jiali and Jacobsen, Ben and Qin, Yafeng, Predictability of the Simple Technical Trading Rules: An Out-of-Sample Test (June 13, 2012). Available at SSRN: https://ssrn.com/abstract=2066182 or http://dx.doi.org/10.2139/ssrn.2066182

Jiali Fang (Contact Author)

Massey University - School of Economics and Finance ( email )

Private Bag 102904, North Shore
Auckland, 0745
New Zealand

Ben Jacobsen

Tilburg University - TIAS School for Business and Society ( email )

Warandelaan 2
TIAS Building
Tilburg, Noord Brabant 5037 AB
Netherlands

Massey University ( email )

Auckland
New Zealand

Yafeng Qin

Massey University ( email )

Private Bag 11 222
Palmerston North, Manawatu 4442
New Zealand
+64 9 4140800 ext 43178 (Phone)
+64 9 441 8177 (Fax)

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