Fundamental Analysis + Technical Analysis = Success
by Trader Rich
There is a research paper that was brough to my attention by one of the authors which finds that combining two types of information (fundamental and technical analysis) improves risk-adjusted performance of an investment strategy. This paper specifically addresses the success in 23 emerging markets.
I asked one of the author some questions. Here are their answers.
How long and how much research was put into the paper?
The four of us have spent in total about one man-year of work into creating this research paper. We will present it at the emerging markets conference at Cass Business School in London in May ’08.
Do you or the other researchers have experience as professional traders?
Two coauthors of mine are purely academic, but one is at ING Investment Management and I myself am at the Quant Strategies dpt of Robeco Asset Management. I would like to tell you about our quantititave strategies and how we apply our insights in real live portfolios, but our compliance departments do not allow this. So you could mention our affiliation with
professional investment teams, but nothing about the practical application.
What is the main attraction of the paper?
I think the main attractor of the paper is the (slightly changed) abstract: The authors measure the profitability from fundamental and technical trading rules for emerging markets currency investments. Using a sample of 23 emerging markets with a floating exchange rate regime over the period 1995-2007, they document that both types of information can be exploited to implement profitable alpha trading strategies. In line with evidence from surveys of foreign exchange professionals concerning the use of fundamental and technical analysis, the authors find that combining the two types of information improves the risk-adjusted performance of the investment strategies, with Sharpe ratios above 1.4 for emerging currency markets and above 0.5 for developed currency markets. These results indicate that active currency traders may wish to expand their strategies to emerging currency markets, where alpha opportunities seem to be larger.
You can download the paper from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1088222