The Trend Is Your (Imaginary) Friend - A Behavioral Perspective on Technical Analysis
نویسندگان
چکیده
Technical analysts, or chartists, aim at predicting future prices from past prices. To this end, for example, they draw resistance levels and Moving Average (MA) lines into stock price charts. We show that the widely employed MA cross-over rule is consistent with prospect theory preferences even when prices do not move in trends and when stock trading is unattractive to all rational expected utility maximizers. While chartists often argue that market participants being less than fully rational explains why technical analysis is profitable, this paper shows that technical analysis may be attractive—even when not profitable—to investors who are less than fully rational.
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