Discussion Papers 1552, 47 S.
Fabian Baetje, Lukas Menkhoff
2016
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Published in: International Journal of Forecasting 32 (2016), 4, S. 1193-1207
We show that technical indicators deliver stable economic value in predicting the U.S. equity premium over the out-of-sample period from 1966 to 2014. Results tentatively improve over time and beat alternatives over a large continuum of sub-periods. By contrast, economic indicators work well only until the 1970s, but thereafter they lose predictive power, even when the last crisis is considered. Translating the predictive power of technical indicators into a standard investment strategy delivers an annualized average Sharpe ratio of 0.55 p.a. (after transaction costs) for investors who had entered the market at any point in time.
JEL-Classification: G17;G12
Keywords: Equity premium predictability, economic indicators, technical indicators, break tests
Frei zugängliche Version: (econstor)
http://hdl.handle.net/10419/129207