and that this strategy can profitably be exploited, even after correction for transaction costs.
CAPM
The estimation results of the Sharpe-Lintner CAPM in tables 4.8B and 4.12 for the Sharpe ratio criterion are similar to the estimation results in tables 4.8A and 4.10 for the mean return criterion. If zero transaction costs are implemented, then it is found for 39 out of 51 data series that the estimate of α is significantly positive at the 10% significance level. This number decreases to 32 and 25 data series if transaction costs increase to 0.50 and 1% per trade. The estimates of β are in general significantly smaller than one. Thus, after correction for transaction costs and risk, for approximately half of the data series examined it is found that the best technical trading strategy selected by the Sharpe ratio criterion outperforms the strategy of buying and holding the market portfolio and is even less risky.
costs α<0 α>0 β<1 β>1 α>0 ∧ α>0 ∧ β<1 β>1 0% 2 39 41 2 32 2 0.10% 2 38 42 1 32 1 0.25% 2 35 42 1 30 0 0.50% 2 32 41 0 26 0 0.75% 2 29 40 0 23 0 1% 3 25 40 0 19 0
Table 4.12: Summary: significance CAPM estimates, Sharpe ratio criterion. For each transaction cost case, the table shows the number of data series for which significant estimates are found at the 10% significance level for the coefficients in the Sharpe-Lintner CAPM (4.1). Columns 1 and 2 show the number of data series for which the estimate of α is significantly negative and positive. Columns 3 and 4 show the number of data series for which the estimate of β is significantly smaller and larger than one. Column 5 shows the number of data series for which the estimate of α is significantly positive as well as the estimate of β is significantly smaller than one. Column 6 shows the number of data series for which the estimate of α is significantly positive as well as the estimate of β is significantly larger than one. Note that the number of data series analyzed is equal to 51 (50 stocks and the AEX-index).
Data snooping
In the case of 0 and 0.10% transaction costs table 4.9B shows the nominal, White's RC and Hansen's SPA-test p-values, if the best strategy is selected by the Sharpe ratio criterion. Table 4.13 summarizes the results for all transaction cost cases by showing the number of data series for which the corresponding p-value is smaller than 0.10.The results for the Sharpe ratio selection criterion differ from the mean return selection criterion. If the nominal p-value is used to test the null that the best strategy is not
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