Evaluation of methodology involved in a selected stock market timing technique

Abstract

Scope and Method of Study: An empirical study to determine the efficiency of a selected timing technique for stock market traders was conducted. The subject technique was devised by the founder of a well-known investment advisory service and utilized manipulations involving daily price advances and declines on the New York Stock Exchange. The technique was applied to twelve stocks meeting the prescribed selection criteria as well as Standard and Poor's five-hundred stock composite index for varying time periods during the three years ended June 30, 1966. The results of these tests were compared to those evolving through use of a simple buy and- hold policy applied to the same stocks during the same periods.

Findings and Conclusions: The findings in all tests indicated that the subject technique was inefficient and substantially inferior to a naive buy-and-hold policy. Extremely interesting implications for further study were generated by certain of the test results. These results indicated that superior yields might be obtained by purchase of stocks which, pricewise, have recently outperformed the market as a whole. In addition to suggesting approaches to further research in this area, the pertinent findings were related to past research efforts.