Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/129207
Authors: 
Baetje, Fabian
Menkhoff, Lukas
Year of Publication: 
2016
Series/Report no.: 
DIW Discussion Papers 1552
Abstract: 
We show that technical indicators deliver stable economic value in predicting the U.S. equity premium over the out-of-sample period from 1966 to 2014. Results tentatively improve over time and beat alternatives over a large continuum of sub-periods. By contrast, economic indicators work well only until the 1970s, but thereafter they lose predictive power, even when the last crisis is considered. Translating the predictive power of technical indicators into a standard investment strategy delivers an annualized average Sharpe ratio of 0.55 p.a. (after transaction costs) for investors who had entered the market at any point in time.
Subjects: 
equity premium predictability
economic indicators
technical indicators
break tests
JEL: 
G17
G12
Document Type: 
Working Paper

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