Technical analysis compared to mathematical models based methods under parameters mis-specification

Christophette Blanchet‐Scalliet

doi:10.1016/j.jbankfin.2006.10.017

2007-05-01

PRE

Christophette Blanchet‐Scalliet *

DOI：10.1016/j.jbankfin.2006.10.017

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摘要

En 中文

In this study, we compare the performance of trading strategies based on possibly mis-specified mathematical models with a trading strategy based on a technical trading rule. In both cases, the trader attempts to predict a change in the drift of the stock return occurring at an unknown time. We explicitly compute the trader's expected logarithmic utility of wealth for the various trading strategies. We next rely on Monte Carlo numerical experiments to compare their performance. The simulations show that under parameter mis-specification, the technical analysis technique out-performs the optimal allocation strategy but not the Model and Detect strategies. The latter strategies dominance is confirmed under parameter mis-specification as long as the two stock returns' drifts are high in absolute terms. (c) 2006 Elsevier B.V. All rights reserved.

Keyword:

stochastic models

model specification

portfolio allocation

chartist