Here’s some weekend reading courtesy of two researchers, one from Maastricht University – School of Business and Economics – Department of Finance, the other Santa Clara University – Leavey School of Business.
Research paper abstract (main points):
- We find that individual investors who use technical analysis and trade options frequently make poor portfolio decisions, resulting in dramatically lower returns than other investors.
- Overall, our results indicate that individual investors who report using technical analysis are disproportionately prone to have speculation on short-term stock-market developments as their primary investment objective, hold more concentrated portfolios which they turn over at a higher rate, are less inclined to bet on reversals, choose risk exposures featuring a higher ratio of nonsystematic risk to total risk, engage in more options trading, and earn lower returns.
Or… are they just doin’ it wrong?