Popularity versus Profitability: Evidence from Bollinger Bands

46 Pages Posted: 23 Aug 2014 Last revised: 23 Jun 2017

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: August 20, 2014

Abstract

Many so-called return predictability anomalies disappear over time. One theoretical explanation is that investors arbitrage profits away through their trading. But investors have used technical analysis strategies for ages, so this argument may not necessarily hold for seemingly profitable technical analysis trading strategies. To verify whether such an argument has merit, we investigate what would happen if a completely new technical trading rule appeared that investors had never used before but which became more popular over time. Bollinger Bands, introduced in 1983, provide a natural experiment. Before their introduction, trading on Bollinger Bands would have been an extremely profitable trading strategy in international stock markets. However, ever since their introduction, their predictive power seems to have gradually decreased and has largely disappeared since the influential publication on Bollinger Bands in 2001. Moreover, their predictability disappeared in the US market first, where Bollinger Bands originated, and then in other international markets.

Keywords: Bollinger Bands, Technical Analysis, Return Predictability, Publication Impact

JEL Classification: G10, G12, G14

Suggested Citation

Fang, Jiali and Jacobsen, Ben and Qin, Yafeng, Popularity versus Profitability: Evidence from Bollinger Bands (August 20, 2014). Available at SSRN: https://ssrn.com/abstract=2484322 or http://dx.doi.org/10.2139/ssrn.2484322

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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