Journal article
The Predictive Power of "Head-and-Shoulders" Price Patterns in the U.S. Stock Market
Journal of financial econometrics, Vol.5(2), pp.243-265
04/01/2007
DOI: 10.1093/jjfinec/nbl012
Abstract
We use the pattern recognition algorithm of Lo, Mamaysky, and Wang (2000) with some modifications to determine whether "head-and-shoulders" (HS) price patterns have predictive power for future stock returns. The modifications include the use of filters based on typical price patterns identified by a technical analyst. With data from the S&P 500 and the Russell 2000 over the period 1990-1999 we find little or no support for the profitability of a stand-alone trading strategy. But we do find strong evidence that the pattern had power to predict excess returns. Risk-adjusted excess returns to a trading strategy conditioned on "head-and-shoulders" price patterns are 5-7% per year. Combining the strategy with the market portfolio produces a significant increase in excess return for a fixed level of risk exposure.
Details
- Title: Subtitle
- The Predictive Power of "Head-and-Shoulders" Price Patterns in the U.S. Stock Market
- Creators
- Gene Savin - The University of IowaPaul Weller - The University of IowaJānis Zvingelis - Mesirow Financial
- Resource Type
- Journal article
- Publication Details
- Journal of financial econometrics, Vol.5(2), pp.243-265
- DOI
- 10.1093/jjfinec/nbl012
- ISSN
- 1479-8409
- eISSN
- 1479-8417
- Publisher
- Oxford University Press
- Number of pages
- 23
- Language
- English
- Date published
- 04/01/2007
- Academic Unit
- Economics; Finance
- Record Identifier
- 9984963212902771
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