Foundations of Technical Analysis: Computational Algorithms, Statistical Inference, and Empirical Implementation / Andrew W. Lo, Harry Mamaysky, Jiang Wang.

Format:

Book

Author/Creator:

Lo, Andrew W.

Contributor:

National Bureau of Economic Research.

Mamaysky, Harry.

Wang, Jiang.

Series:

Working Paper Series (National Bureau of Economic Research) no. w7613.

NBER working paper series no. w7613

Language:

English

Subjects (All):

Stock price forecasting--Statistical methods.

Stock price forecasting.

Finance--Statistical methods.

Finance.

Corporations--Accounting.

Corporations.

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Foundations of Technical Analysis

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2000.

Cambridge, Massachusetts : National Bureau of Economic Research, 2000.

Summary:

Technical analysis, also known as charting,' has been part of financial practice for many decades, but this discipline has not received the same level of academic scrutiny and acceptance as more traditional approaches such as fundamental analysis. One of the main obstacles is the highly subjective nature of technical analysis the presence of geometric shapes in historical price charts is often in the eyes of the beholder. In this paper, we propose a systematic and automatic approach to technical pattern recognition using nonparametric kernel regression, and apply this method to a large number of U.S. stocks from 1962 to 1996 to evaluate the effectiveness to technical analysis. By comparing the unconditional empirical distribution of daily stock returns to the conditional distribution conditioned on specific technical indicators such as head-and-shoulders or double-bottoms we find that over the 31-year sample period, several technical indicators do provide incremental information and may have some practical value.

Notes:

Print version record

March 2000.