Filter Rules: Follow the Trend, or Take the Contrarian Approach?
8 Pages Posted: 6 Nov 2010
Date Written: August 27, 2010
This paper compares a trending approach to the filter trading rule against a contrarian approach. It is found that, after adjusting for transaction costs, the contrarian approach consistently outperforms the trending approach, and is able to earn returns in excess of the buy-and-hold trading strategy. The significance and robustness of the results are supported by a bootstrap simulation and sub-period analysis, respectively.
Keywords: Filter Rule, Market Efficiency, Contrarian Trading Strategy
JEL Classification: G14, G19, N22
Suggested Citation: Suggested Citation