Head and Shoulders Above the Rest? The Performance of Institutional Portfolio Managers Who Use Technical Analysis

37 Pages Posted: 17 Jan 2013  

David M. Smith

State University of New York at Albany - School of Business

Christophe Faugère

Kedge Business School Bordeaux

Ying Wang

State University of New York at Albany - School of Business

Date Written: January 17, 2013

Abstract

This study takes a novel approach to testing the efficacy of technical analysis. Rather than testing specific trading rules as is typically done in the literature, we rely on institutional portfolio managers’ statements about whether and how intensely they use technical analysis, irrespective of the form in which they implement it. In our sample of more than 10,000 portfolios, about one-third of actively managed equity and balanced funds use technical analysis. We compare the investment performance of funds that use technical analysis versus those that do not using five metrics. Mean and median (3 and 4-factor) alpha values are generally slightly higher for a cross section of funds using technical analysis, but performance volatility is also higher. Benchmark-adjusted returns are also higher, particularly when market prices are declining. The most remarkable finding is that portfolios with greater reliance on technical analysis have elevated skewness and kurtosis levels relative to portfolios that do not use technical analysis. Funds using technical analysis appear to have provided a meaningful advantage to their investors, albeit in an unexpected way.

Keywords: technical analysis, portfolio management, institutional investment

JEL Classification: G11, G12, G23

Suggested Citation

Smith, David M. and Faugère, Christophe and Wang, Ying, Head and Shoulders Above the Rest? The Performance of Institutional Portfolio Managers Who Use Technical Analysis (January 17, 2013). Available at SSRN: https://ssrn.com/abstract=2202060 or http://dx.doi.org/10.2139/ssrn.2202060

David McNeil Smith

State University of New York at Albany - School of Business ( email )

1400 Washington Ave.
Albany, NY 12222
United States

HOME PAGE: http://www.albany.edu/ciim

Christophe Faugère (Contact Author)

Kedge Business School Bordeaux ( email )

680 Cours de la Liberation
Bordeaux, Aquitaine 33405
France

Ying Wang

State University of New York at Albany - School of Business ( email )

1400 Washington Ave.
Albany, NY 12222
United States

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