Should Ethical Traders Employ Technical Analysis?
41 Pages Posted: 12 Jul 2018
Date Written: June 21, 2018
This paper examines the performance of technical trading rules in Socially Responsible Investment (SRI) indices. Unlike previous studies, we separate technical trading rules into those that aim to trend-follow and those that employ mean-reversion. Using three popular FTSE4Good indices, we show that six traditional trend-following technical trading rules offer very little predictive power or significant returns to investors. However three mean-reversal technical trading rules do offer significant returns, even after controlling for data-snooping, risk, transaction costs and the out- of-sample testing. Therefore our results suggest that ethical traders should consider employing mean-reversal technical trading rules in their investment strategies.
Keywords: Socially Responsible Investments, Technical Analysis, Data-Snooping
JEL Classification: G1, G11
Suggested Citation: Suggested Citation