When Buffett Meets Bollinger: An Integrated Approach to Fundamental and Technical Analysis
38 Pages Posted: 24 Feb 2019
Date Written: August 7, 2018
We study the portfolio performance of investment strategies that jointly apply both fundamental analysis and technical analysis. Compared with strategies that rely on one-dimensional fundamental or technical information, the integrated approach to fundamental and technical investing significantly improves portfolio performance. In addition, the joint strategies appear to perform better for stocks with higher idiosyncratic risks. We also find that when combined with fundamental signals, the Bollinger Bands, a reversal-type technical indicator, outperforms the moving average, which captures recent momentum in prices. Contrary to earlier findings from the literature, we show that moving average based strategies tend to incur higher volatility, lower Sharpe ratio, and larger tail risk. Our findings are consistent with the notion that, especially among small firms, the trading activities from investors with limited information capacity can lead to inefficient prices.
Keywords: Fundamental Analysis, Technical Analysis, Limited Investor Attention, Market Efficiency
JEL Classification: G11, G12, G14
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