Is the simple trading range break-out rule profitable from the NASDAQ index?

摘要

Purpose - The purpose of this paper is to examine the profitability from various simple trading range break-out rules on the NASDAQ index. Design/methodology/approach - Runs test is used to test whether the returns from every other days on buy and sell days are random. If they are not random, then the Student T-test will not be applicable to test the predictive power for profitability from the simple trading range break-out rules on the NASDAQ index. Findings - Empirical study in this paper shows that the returns on buy and sell days are not random via runs test. Therefore, the simple trading range break-out rules cannot lead to the conclusion that they have the predictive power for profitability from the T-test. Applying the simple trading range break-out rule to NASDAQ does not support or overturn the market efficiency hypothesis. Research limitations/implications - The study is only based on the five simple trading range break-out rules from 9,311 daily closing prices on the NASDAQ over the period of February 5,1971 to December 12, 2007. It can serve as a counter example for other studies about the predictive power of profitability from different trading rules. Practical implications - Contrary to numerous previous research works, the study shows that the simple trading range breakout rules have no predictive power for profitability, and should not be used to test the market efficiency. Originality/value - Based on the literature review, the study is one of the first empirical studies showing the returns on buy and sell days are not independent, and the authors cannot conclude that the trading range break-out rules have the predictive power for profitability on the NASDAQ index.