Technical analysis as a sentiment barometer and the cross-section of stock returns

Ding, Wenjie, Mazouz, Khelifa ORCID: https://orcid.org/0000-0001-6711-1715, ap Gwilym, Owain and Wang, Qingwei ORCID: https://orcid.org/0000-0002-3695-7846 2023. Technical analysis as a sentiment barometer and the cross-section of stock returns. Quantitative Finance 23 (11) , pp. 1617-1636. 10.1080/14697688.2023.2244991 Item availability restricted.

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Abstract

This paper explores an unexamined sentiment channel through which technical analysis can add value. We use a spectrum of technical trading strategies to build a daily market sentiment indicator that is highly correlated with other commonly used sentiment measures. This technical-analysis-based sentiment indicator positively predicts near-term returns and is inversely related to long-term returns in the cross-section. Simple trading strategies based on this sentiment indicator yield substantial abnormal returns. These results are consistent with the explanation that lack of synchronization induces rational arbitrageurs to exploit the mispricing before it is corrected.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Publisher:	Taylor and Francis Group
ISSN:	1469-7688
Date of First Compliant Deposit:	3 August 2023
Date of Acceptance:	21 July 2023
Last Modified:	12 Dec 2023 08:17
URI:	https://orca.cardiff.ac.uk/id/eprint/161200

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