On the existence of visual technical patterns in the UK stock market

Edward R. Dawson, James M. Steeley

Research output: Contribution to journalArticle

Abstract

The aim in this paper is to replicate and extend the analysis of visual technical patterns by Lo et al. (2000) using data on the UK market. A non-parametric smoother is used to model a nonlinear trend in stock price series. Technical patterns, such as the 'head-and-shoulders' pattern, that are characterised by a sequence of turning points are identified in the smoothed data. Statistical tests are used to determine whether returns conditioned on the technical patterns are different from random returns and, in an extension to the analysis of Lo et al. (2000), whether they can outperform a market benchmark return. For the stocks in the FTSE 100 and FTSE 250 indices over the period 1986 to 2001, we find that technical patterns occur with different frequencies to each other and in different relativities to the frequencies found in the US market. Our extended statistical testing indicates that UK stock returns are less influenced by technical patterns than was the case for US stock returns.
Original languageEnglish
Pages (from-to)263-293
Number of pages31
JournalJournal of Business Fnance and Accounting
Volume30
Issue number1/2
DOIs
Publication statusPublished - Jan 2003

Fingerprint

Stock market
Stock returns
Nonlinear trend
Turning point
Stock prices
Benchmark
Statistical tests
Statistical testing

Keywords

  • technical trading rules
  • non-parametric smoother
  • market efficiency

Cite this

Dawson, Edward R. ; Steeley, James M. / On the existence of visual technical patterns in the UK stock market. In: Journal of Business Fnance and Accounting. 2003 ; Vol. 30, No. 1/2. pp. 263-293.
@article{14e1b749f3ef4ebdb8623bfea83000d6,
title = "On the existence of visual technical patterns in the UK stock market",
abstract = "The aim in this paper is to replicate and extend the analysis of visual technical patterns by Lo et al. (2000) using data on the UK market. A non-parametric smoother is used to model a nonlinear trend in stock price series. Technical patterns, such as the 'head-and-shoulders' pattern, that are characterised by a sequence of turning points are identified in the smoothed data. Statistical tests are used to determine whether returns conditioned on the technical patterns are different from random returns and, in an extension to the analysis of Lo et al. (2000), whether they can outperform a market benchmark return. For the stocks in the FTSE 100 and FTSE 250 indices over the period 1986 to 2001, we find that technical patterns occur with different frequencies to each other and in different relativities to the frequencies found in the US market. Our extended statistical testing indicates that UK stock returns are less influenced by technical patterns than was the case for US stock returns.",
keywords = "technical trading rules, non-parametric smoother, market efficiency",
author = "Dawson, {Edward R.} and Steeley, {James M.}",
year = "2003",
month = "1",
doi = "10.1111/1468-5957.00492",
language = "English",
volume = "30",
pages = "263--293",
journal = "Journal of Business Fnance and Accounting",
issn = "0306-686X",
publisher = "Wiley-Blackwell",
number = "1/2",

}

On the existence of visual technical patterns in the UK stock market. / Dawson, Edward R.; Steeley, James M.

In: Journal of Business Fnance and Accounting, Vol. 30, No. 1/2, 01.2003, p. 263-293.

Research output: Contribution to journalArticle

TY - JOUR

T1 - On the existence of visual technical patterns in the UK stock market

AU - Dawson, Edward R.

AU - Steeley, James M.

PY - 2003/1

Y1 - 2003/1

N2 - The aim in this paper is to replicate and extend the analysis of visual technical patterns by Lo et al. (2000) using data on the UK market. A non-parametric smoother is used to model a nonlinear trend in stock price series. Technical patterns, such as the 'head-and-shoulders' pattern, that are characterised by a sequence of turning points are identified in the smoothed data. Statistical tests are used to determine whether returns conditioned on the technical patterns are different from random returns and, in an extension to the analysis of Lo et al. (2000), whether they can outperform a market benchmark return. For the stocks in the FTSE 100 and FTSE 250 indices over the period 1986 to 2001, we find that technical patterns occur with different frequencies to each other and in different relativities to the frequencies found in the US market. Our extended statistical testing indicates that UK stock returns are less influenced by technical patterns than was the case for US stock returns.

AB - The aim in this paper is to replicate and extend the analysis of visual technical patterns by Lo et al. (2000) using data on the UK market. A non-parametric smoother is used to model a nonlinear trend in stock price series. Technical patterns, such as the 'head-and-shoulders' pattern, that are characterised by a sequence of turning points are identified in the smoothed data. Statistical tests are used to determine whether returns conditioned on the technical patterns are different from random returns and, in an extension to the analysis of Lo et al. (2000), whether they can outperform a market benchmark return. For the stocks in the FTSE 100 and FTSE 250 indices over the period 1986 to 2001, we find that technical patterns occur with different frequencies to each other and in different relativities to the frequencies found in the US market. Our extended statistical testing indicates that UK stock returns are less influenced by technical patterns than was the case for US stock returns.

KW - technical trading rules

KW - non-parametric smoother

KW - market efficiency

UR - http://www.scopus.com/inward/record.url?scp=34250717279&partnerID=8YFLogxK

UR - http://www3.interscience.wiley.com/journal/118840042/abstract

U2 - 10.1111/1468-5957.00492

DO - 10.1111/1468-5957.00492

M3 - Article

VL - 30

SP - 263

EP - 293

JO - Journal of Business Fnance and Accounting

JF - Journal of Business Fnance and Accounting

SN - 0306-686X

IS - 1/2

ER -