Are Chartists Artists? The Determinants and Profitability of Recommendations Based on Technical Analysis

58 Pages Posted: 30 Jun 2016 Last revised: 15 Aug 2016

See all articles by Dirk Gerritsen

Dirk Gerritsen

Utrecht University - Utrecht University School of Economics

Date Written: February 22, 2016

Abstract

The value of technical analysis (TA) has been debated for decades; however, limited evidence exists on the profitability of investment recommendations issued by technical analysts. These ‘chartists’ sometimes claim that TA is an art rather than a science. We evaluated more than 5000 TA-based buy and sell recommendations for stocks and a market index in the Netherlands issued during the period 2004 – 2010. The sign of a recommendation was generally in line with trading signals resulting from technical trading rules. While recommendation levels were positively associated with price trends prior to the recommendation, we did not find evidence of (abnormal) stock returns after the publication of these recommendations. In addition, stop-loss levels did not contain informational value as no meaningful returns were detected after these trigger levels were met. Given that technical recommendations follow well-known trading rules and that these recommendations are not associated with future abnormal returns, we conclude that technical analysts do not exhibit ‘artistic’ skills.

Keywords: Technical Analysis, Security Analysts, Recommendations, Stop-loss Levels

JEL Classification: G02, G14, G24

Suggested Citation

Gerritsen, Dirk, Are Chartists Artists? The Determinants and Profitability of Recommendations Based on Technical Analysis (February 22, 2016). International Review of Financial Analysis, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2801615

Dirk Gerritsen (Contact Author)

Utrecht University - Utrecht University School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

Register to save articles to
your library

Register

Paper statistics

Downloads
228
rank
128,312
Abstract Views
1,252
PlumX Metrics