Is Technical Analysis Profitable on U.S. Stocks With Certain Size, Liquidity or Industry Characteristics?

Abstract

We consider whether popular technical trading rules are profitable on a subset of U.S. stocks with certain size, liquidity, and industry characteristics. We find these rules are rarely profitable during the 1990 to 2004 period, however there is some evidence they are more profitable for smaller, less liquid stocks. When a rule does produce statistically significant profits on a stock they tend to be considerably higher than reasonable estimates of transactions costs. This may explain why these rules are so popular in spite of their overall underperformance.

Keywords: Technical Analysis, Size, Liquidity

JEL Classification: G14