| The main conclusion of this thesis is that for all assets examined here momentum based trading rules yield superior risk adjusted returns compared to buy-and-hold strategies under both weekly and monthly time periods. Furthermore, for weekly data from the CRSP NYSE-AMEX equal-weighted index, the CRSP NASDAQ value-weighted index, the CRSP NASDAQ equal-weighted index, small cap stocks, and certain sectors, technical trading rules outperform the buy-and-hold strategies before adjusting for risk and after adjusting for transaction costs. The consequence of these conclusions is that technical trading rules are useful.; The first chapter of this thesis largely serves to update and refine the results of Lo and MacKinlay's 1988 article on testing Random Walk Hypotheses. Chapter 2 and Chapter 3 address the main results summarized above. The profitability of momentum based trading rules, specifically the filter rule, applied to market indexes, decile portfolios, and sector-sorted portfolios are examined with the help of several risk adjusted measures. Furthermore, the connection between returns to the filter rule and lag one autocorrelation is established. Chapter 4 then serves to complete our assessment of the profitability of technical trading rules, which we do by examining the performance of the MACD indicator and the Moving Average strategy. |
