Technical Analysis, Spread Trading and Data Snooping Control

International Journal of Forecasting, Volume x, pp x-x, November 2021, DOI: 10.1016/j.ijforecast.2021.10.002

70 Pages Posted: 8 Mar 2018 Last revised: 27 Dec 2021

See all articles by Ioannis Psaradellis

Ioannis Psaradellis

University of St Andrews School of Economics and Finance

Jason Laws

University of Liverpool - Accounting and Finance Division

Athanasios A. Pantelous

Monash University - Department of Econometrics & Business Statistics

Georgios Sermpinis

University of Glasgow

Date Written: June 17, 2020

Abstract

This paper utilizes a large universe of 18,410 technical trading rules (TTRs) and adopts a technique that controls for false discoveries to evaluate the performance of frequently traded spreads using daily data over 1990–2016. For the first time, the paper applies an excessive out-of-sample analysis in different subperiods across all TTRs examined. For commodity spreads, the evidence of significant predictability appears much stronger compared to equity and currency spreads. Out-of-sample performance of portfolios of significant rules typically exceeds transaction cost estimates and generates a Sharpe ratio of 3.67 in 2016. In general, we reject previous studies’ evidence of a uniformly monotonic downward trend in the selection of predictive TTRs over 1990–2016.

Keywords: Technical Trading Rules; Spread Trading Predictability; False Discovery Rate; Bootstrap Test; Portfolio Performance

JEL Classification: C12, C53, G11, G14, G15

Suggested Citation

Psaradellis, Ioannis and Laws, Jason and Pantelous, Athanasios A. and Sermpinis, Georgios, Technical Analysis, Spread Trading and Data Snooping Control (June 17, 2020). International Journal of Forecasting, Volume x, pp x-x, November 2021, DOI: 10.1016/j.ijforecast.2021.10.002, Available at SSRN: https://ssrn.com/abstract=3128788 or http://dx.doi.org/10.2139/ssrn.3128788

Ioannis Psaradellis (Contact Author)

University of St Andrews School of Economics and Finance ( email )

Castlecliffe, The Scores
St Andrews, KY16 9AR
United Kingdom

Jason Laws

University of Liverpool - Accounting and Finance Division ( email )

United Kingdom

Athanasios A. Pantelous

Monash University - Department of Econometrics & Business Statistics ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Georgios Sermpinis

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

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