On the Bound of Cumulative Return in Trading Series and the Verification Using Technical Trading Rules

TL;DR

This paper establishes an upper bound for cumulative returns in trading series, evaluates various technical trading rules across global markets, and finds they are generally not more profitable than random strategies.

Contribution

It introduces a theoretical upper bound for cumulative returns and empirically tests the profitability of technical trading rules across multiple markets.

Findings

Technical trading rules are often less profitable than random strategies.

The paper provides a theoretical upper limit for cumulative returns.

Technical rules struggle to outperform the market in diverse international markets.

Abstract

Although there is a wide use of technical trading rules in stock markets, the profitability of them still remains controversial. This paper first presents and proves the upper bound of cumulative return, and then introduces many of conventional technical trading rules. Furthermore, with the help of bootstrap methodology, we investigate the profitability of technical trading rules on different international stock markets, including developed markets and emerging markets. At last, the results show that the technical trading rules are hard to beat the market, and even less profitable than the random trading strategy.