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11 months ago

Technical Analysis Vs Fundamental, stock picks, the Jury is in.

An Academic study has been completed that looked at Stock pick Idea’s over a 3 year period.

Talking Numbers:    Technical versus Fundamental Investment Recommendations

Doron Avramov *, Guy Kaplanski**, Haim Levy***    This version: December  16, 2015.

Summary of the paper.

This paper examines the predictive ability of technical and fundamental investment recommendations broadcasted on the “Talking Numbers” TV show. The sample consists of 1,599 dual recommendations spanning Nov 8, 2011 through Dec 31, 2014, where each dual recommendation contains a fundamental and a technical forecast. We show that technical recommendations are able to forecast abnormal returns (with respect to Fama-French and momentum benchmarks) in individual stocks up to a 12 months horizon, while fundamental recommendations show considerably weaker predictive ability. Beyond that, neither group displays any predictive power for the overall U.S. market, various equity and bond indexes, or commodities.

Here are a couple of out takes from the paper.

Further analysis shows that technicians outperform in two dimensions.

First, they generate a higher proportion of correct recommendations, whereby a correct recommendation amounts to a buy (sell) recommendation followed by an advancing (diminishing) stock price.

Second, they produce higher gains following correct recommendations and lower losses following incorrect recommendations. Consistently, for time horizons ranging from one month to twelve months, positive buy and strong-buy technical recommendations are followed by higher returns than buy and strong-buy fundamental recommendations. Likewise, negative sell and strong-sell technical recommendations are followed by lower returns than the corresponding fundamental recommendations. The success of technicians in picking individual stocks is robust to controlling for common risk factors as well as for firm-level size, book-to-market, volatility, trading volume, and past trends in stock prices.

It is also unaffected by the analyst’s gender, by the immediate impact of the broadcast on the stock price (which is found to be highly significant), and by reasonable trading costs. As an aside, there are only 10% females among both technicians and fundamental analysts. Within this subsample of female analysts, the evidence also shows significant outperformance of technical recommendations.

TA Graph

 Email me at     g.burton@fpmarkets.com.au   if you would like a copy of the paper