Profitability of technical analysis in financial and commodity futures markets - A reality check

Meng-Feng Yen, Ying Lin Hsu

Research output: Contribution to journalArticlepeer-review

12 Citations (Scopus)

Abstract

Based on the SPA test (test for superior predictive ability), Sortino and reversed Sortino ratios, we examined the profitability of a universe of 8061 technical trading rules in ten futures markets including five financial and five commodity underlying assets. We tested whether the best performing rule really beats its buy-and-hold benchmark strategy in bullish and bearish markets, respectively, during the in-sample testing period. The best rules' performance relative to the benchmark is also tested during the one-year out-of-sample period for all ten sets of data. A novel set of multi-indicator rules, MFI-RSI, and four popular categories of single-indicator rules, filter rules, moving averages, on-balance volume averages and momentum strategy in volume, were employed to form our universe of trading rules. The results on the SPA test suggest market efficiency in nine of the ten futures markets, while the results on the Sortino and reversed Sortino ratios reveal persistent outperformance of the best 'downside' and 'upside' rules relative to the buy-and-hold benchmark across time in four and three futures markets, respectively.

Original languageEnglish
Pages (from-to)128-139
Number of pages12
JournalDecision Support Systems
Volume50
Issue number1
DOIs
Publication statusPublished - 2010 Dec 1

All Science Journal Classification (ASJC) codes

  • Management Information Systems
  • Information Systems
  • Developmental and Educational Psychology
  • Arts and Humanities (miscellaneous)
  • Information Systems and Management

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