Technical analysis profitability and Persistence: A discrete false discovery approach on MSCI indices

Abstract

We investigate the performance of more than 21,000 technical trading rules on 12 categorical and country-specific markets over the 2004-2015 study period. For this purpose, we apply a discrete false discovery rate approach in more than 240,000 hypotheses and examine the profitability, persistence and robustness of technical analysis. In terms of our results, technical analysis has short-term value. A novel cross-validation exercise highlights the importance of frequent rebalancing and supports our findings. Financial stress seems to have a strong negative effect in technical analysis profitability for US markets and a strong positive effect for emerging and other advanced markets.

Keywords: financial economics, false discovery rate, multiple hypothesis testing, stock index, portfolio management

JEL Classification: G11, G01, F47, G15