Market efficiency and the returns to technical analysis

Hendrik Bessembinder; Kalok Chan

doi:10.2307/3666289

Market efficiency and the returns to technical analysis

Hendrik Bessembinder, Kalok Chan

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

199 Citations (Scopus)

Abstract

We further investigate and provide interpretation for the intriguing Brock, Lakonishok, and LeBaron (1992) finding that simple forms of technical analysis contain significant forecast power for US equity index returns. We document that the forecast ability is partially, but not solely, attributable to return measurement errors arising from nonsynchronous trading. We argue that the evidence supporting technical forecast power need not be inconsistent with market efficiency. "Break-even" one-way trading costs are computed to be 0.39% for the full sample and 0.22% since 1975, which are small compared to recent estimates of actual trading costs.

Original language	English
Pages (from-to)	5-17
Journal	Financial Management
Volume	27
Issue number	2
DOIs	https://doi.org/10.2307/3666289
Publication status	Published - Jun 1998
Externally published	Yes

Bibliographical note

Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].

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N2 - We further investigate and provide interpretation for the intriguing Brock, Lakonishok, and LeBaron (1992) finding that simple forms of technical analysis contain significant forecast power for US equity index returns. We document that the forecast ability is partially, but not solely, attributable to return measurement errors arising from nonsynchronous trading. We argue that the evidence supporting technical forecast power need not be inconsistent with market efficiency. "Break-even" one-way trading costs are computed to be 0.39% for the full sample and 0.22% since 1975, which are small compared to recent estimates of actual trading costs.

AB - We further investigate and provide interpretation for the intriguing Brock, Lakonishok, and LeBaron (1992) finding that simple forms of technical analysis contain significant forecast power for US equity index returns. We document that the forecast ability is partially, but not solely, attributable to return measurement errors arising from nonsynchronous trading. We argue that the evidence supporting technical forecast power need not be inconsistent with market efficiency. "Break-even" one-way trading costs are computed to be 0.39% for the full sample and 0.22% since 1975, which are small compared to recent estimates of actual trading costs.

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Market efficiency and the returns to technical analysis

Abstract

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