Cross Country Differences in the Profitability from Technical Analysis Strategies
60 Pages Posted: 3 Nov 2014 Last revised: 9 Sep 2019
Date Written: September 7, 2019
In theory, technical analysis may work because of three reasons: 1) herding behavior, 2) prices being partially revealing and 3) sentiment. Our empirical cross-country evidence from 50 countries shows that technical analysis indeed works particularly well in countries that score highly on different proxies for herding and information uncertainty. As a crude indication, our combined set of proxies explain almost 40% of the variation in cross country profits from technical analysis strategies. Our result may explain why studies using data from different countries find mixed results on the profitability of technical analysis.
Keywords: technical analysis; market efficiency; return predictability; behavior bias
JEL Classification: G10, G12, G14
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