By Ute Bonenkamp
Ute Bonenkamp makes a speciality of the combo of 2 equipment of making an investment: technical buying and selling in accordance with prior adjustments in inventory expense and basic buying and selling in line with basic details. utilizing the technical momentum and the elemental working money circulation thoughts as examples, she empirically exhibits that combining those methods of making an investment is very ecocnomic.
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Extra info for Combining Technical and Fundamental Trading Strategies: Profits, Market Reactions, and Use by Professional Investors
15. Edwards, Magee, and Bassetti (2007), p. 4. 4 Combination of Technical and Fundamental Trading 21 Moreover, Chan, Jegadeesh, and Lakonishok (1996) test in their study, whether price and earnings momentum are the same phenomena. They find that the two effects are distinct, since they both predict future returns, even after controlling for each other. Their conclusion is that the price momentum effect is not only due to the market’s underreaction to past earnings news. In addition, there are some studies analyzing whether several variables are complements or substitutes in predicting future returns.
To cope with this complexity, advocates of technical trading recommend observing past price movements and trading volumes instead of these factors when taking investment decisions. Accordingly, Murphy (1999) states: “The technician believes that anything that can possibly affect the price – fundamentally, politically, psychologically, or otherwise – is actually reflected in the price of that market. ”14 The second premise of technical trading is that prices move in trends, meaning that a trend will more likely continue than reverse.
Rouwenhorst (1998) demonstrates the profits for different European countries, Schiereck, De Bondt, and Weber (1999) for Germany and Chui, Titman, and Wei (2000) for several Asian countries. As momentum profits contradict the efficient market hypothesis, there are studies searching for reasons for the mispricing. In this regard, I differentiate between three different types of studies and present examples for each type: The first type explains the effect by market participants’ “misbehavior”. The second type sticks to market efficiency, finding rational arguments for the effect.
Combining Technical and Fundamental Trading Strategies: Profits, Market Reactions, and Use by Professional Investors by Ute Bonenkamp