Head and Shoulders above the Rest? The Performance of Institutional Portfolio Managers Who Use Technical Analysis
ISBN: 978-1-78190-758-0, eISBN: 978-1-78190-759-7
Publication date: 27 August 2014
Abstract
This study takes a novel approach to testing the efficacy of technical analysis. Rather than testing specific trading rules as is typically done in the literature, we rely on institutional portfolio managers’ statements about whether and how intensely they use technical analysis, irrespective of the form in which they implement it. In our sample of more than 10,000 portfolios, about one-third of actively managed equity and balanced funds use technical analysis. We compare the investment performance of funds that use technical analysis versus those that do not, using five metrics. Mean and median (3 and 4-factor) alpha values are generally slightly higher for a cross section of funds using technical analysis, but performance volatility is also higher. Benchmark-adjusted returns are also higher, particularly when market prices are declining. The most remarkable finding is that portfolios with greater reliance on technical analysis have elevated skewness and kurtosis levels relative to portfolios that do not use technical analysis. Funds using technical analysis appear to have provided a meaningful advantage to their investors, albeit in an unexpected way.
Citation
Smith, D.M., Faugère, C. and Wang, Y. (2014), "Head and Shoulders above the Rest? The Performance of Institutional Portfolio Managers Who Use Technical Analysis", Research in Finance (Research in Finance, Vol. 29), Emerald Group Publishing Limited, Leeds, pp. 167-189. https://doi.org/10.1108/S0196-3821(2013)0000029010
Publisher
:Emerald Group Publishing Limited
Copyright © 2013 Emerald Group Publishing Limited