Spurious regressions in technical trading

Mototsugu Shintani, Tomoyoshi Yabu, Daisuke Nagakura

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

This paper investigates the spurious effect in forecasting asset returns when signals from technical trading rules are used as predictors. Against economic intuition, the simulation result shows that, even if past information has no predictive power, buy or sell signals based on the difference between the short-period and long-period moving averages of past asset prices can be statistically significant when the forecast horizon is relatively long. The theoretical analysis reveals that both 'momentum' and 'contrarian' strategies can be falsely supported, while the probability of obtaining each result depends on the type of the test statistics employed.

Original languageEnglish
Pages (from-to)301-309
Number of pages9
JournalJournal of Econometrics
Volume169
Issue number2
DOIs
Publication statusPublished - 2012 Aug

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Keywords

  • Efficient market hypothesis
  • Nonstationary time series
  • Random walk
  • Technical analysis

ASJC Scopus subject areas

  • Economics and Econometrics
  • Applied Mathematics
  • History and Philosophy of Science

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