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Title: Asset allocation: can technical analysis add value?

Authors: Guofu Zhou; Yingzi Zhu; Sheng Qiang

Addresses: Olin School of Business, Washington University, St. Louis, MO, 63130, USA. ' School of Economics and Management, Tsinghua University, Beijing, 100084, China. ' School of Economics and Management, Tsinghua University, Beijing, 100084, China

Abstract: In this paper, we propose a simple approach to for exploiting optimally the information provided by technical analysis. Our optimal asset allocation strategy is easy to apply in practice and is quite robust to model misspecifications. Empirically, we apply the strategy to the US stock market from January 1926 to March 2011. In addition, we also examine strategy's performances during the recent financial crisis as well as over all the bear markets of the past 85 years. We find that the proposed strategy outperforms the usual fixed asset allocation strategy substantially, and does extremely well during the recent financial crisis.

Keywords: technical analysis; trading rules; asset allocation; bear markets; business cycle; value added; financial crisis.

DOI: 10.1504/IJPAM.2012.046908

International Journal of Portfolio Analysis and Management, 2012 Vol.1 No.1, pp.43 - 58

Available online: 10 May 2012 *

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