The Rise and Fall of Technical Trading Rule Success
46 Pages Posted: 18 Jan 2013 Last revised: 2 Nov 2016
Date Written: January 30, 2013
The purpose of this paper is to examine the performance of an important set of momentum-based technical trading rules (TTRs) applied to all members of the Dow Jones Industrial Average (DJIA) stock index over the period 1928 to 2012. Using a set of econometric models that permit time-variation in risk-adjusted returns to TTR portfolios, the results reveal that profits evolve slowly over time, are confined to particular episodes primarily from the mid-1960s to mid-1980s, and rely on the ability of investors to short-sell stocks. These findings are demonstrated to be consistent with theoretical models that predict a relationship between TTR performance and market conditions.
Keywords: Technical trading rules, short-selling, market conditions
JEL Classification: C32,C53, G11, G14
Suggested Citation: Suggested Citation