Asymmetric return dynamics and technical trading strategies

Kiseok Nam, Kenneth M. Washer, Quentin C. Chu

Research output: Contribution to journalArticle

22 Scopus citations

Abstract

We investigate the profitability of technical trading strategies based on an asymmetric reverting property of stock returns. We identify an asymmetry in return dynamics for daily returns on the S&P 500 index. Return dynamics evolve along a positive (negative) unconditional mean after a prior positive (negative) return. The trading strategies based on this asymmetry generate a positive return for buy signals, a negative return for sell signals, and a positive return for the spread between buy and sell signals. Our results imply that the observed asymmetry in return dynamics is the main source of profitability for the implied strategies, thereby corroborating arguments for the usefulness of technical trading strategies.

Original languageEnglish (US)
Pages (from-to)391-418
Number of pages28
JournalJournal of Banking and Finance
Volume29
Issue number2
DOIs
StatePublished - Feb 1 2005
Externally publishedYes

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All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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