PT  - JOURNAL ARTICLE
AU  - Shu Feng
AU  - Na Wang
AU  - Edward J. Zychowicz
TI  - Sentiment and the Performance of Technical Indicators
AID  - 10.3905/jpm.2017.43.3.112
DP  - 2017 Apr 30
TA  - The Journal of Portfolio Management
PG  - 112--125
VI  - 43
IP  - 3
4099  - https://pm-research.com/content/43/3/112.short
4100  - https://pm-research.com/content/43/3/112.full
AB  - This article studies the effectiveness of technical trading approaches in market environments of varying sentiment. Because of short-sale constraints, overpricing with high sentiment (i.e., relatively optimistic sentiment) is more prevalent compared to underpricing with low sentiment (i.e., relatively pessimistic sentiment), and this effect is stronger on difficult-to-arbitrage securities. The authors find consistent evidence over the period from 1993 to 2010 that the examined set of technical indicators perform better during periods of high sentiment than during periods of low sentiment. Moreover, this sentiment effect is relatively more pronounced for small stocks. These findings hold after a number of robustness checks are applied, and they highlight the importance of incorporating the sentiment effect when using technical indicators.TOPIC: Technical analysis