Sep

4

Take it for what its worth, but I haven't seen this kind of academic study before.

This study assesses the economic value of technical and fundamental recommendations simultaneously featured on "Talking Numbers," a CNBC and Yahoo joint broadcast. Technicians display stock-picking skills, while fundamentalists reveal no value. In particular, technicians overwhelmingly outperform fundamentalists in predicting returns over horizons of three to nine months and moreover they produce large alpha with respect to the Fama and French (1993) and momentum benchmarks. Considering market indexes, Treasuries, commodities, and various equity indexes, both schools of recommendation generate poor forecasts. Overall, the evidence shows that proprietary trading rules could, at best, enhance investments in single stocks, while returns on broader assets are unpredictable.

"Consider first the stocks that the technical analysts identified as strong buys. They on average proceeded to outperform the overall stock market by 7.9% over the subsequent nine months, while the stocks they recommended as strong sells underperformed by 8.9%. That spread of 16.8 percentage points is highly significant from a statistical point of view. As the professors put it in their study, it means that "technicians display rather impressive stock-picking skills." "Contrast that with the performance of the fundamental analysts. The researchers found that their strong buys proceeded on average to underperform the market over the nine months following recommendation — though not by enough to conclude at the 95% confidence level that these analysts were actually worse than random. Even worse, the stocks that these analysts rated as strong sells did not perform appreciably differently than those they considered strong buys."

Andrew Goodwin asks: 

How would a chart technician buyout fund do? 


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