transaction costs. Furthermore, it is necessary to test whether the profits are just the compensation for bearing the risk of holding the risky asset during certain periods.

In total we apply 787 objective computerized trend-following technical trading techniques with and without transaction costs to the 51 market indices (see sections 2.3 and 3.3 and Appendix B of Chapter 3 for the technical trading rule parameterizations). We consider three different trading cases. First we do as if we are a local trader and we apply our technical trading rule set to the indices expressed in local currency and we compute the profits expressed in local currency. If no trading position in the stock market index is held, then the local risk-free interest rate is earned. Due to depreciation however, it is possible that profits in local currencies disappear when recomputed in US Dollars. Therefore we also consider the problem from the perspective of an US-based trader. Trading signals are then generated in two different ways: firstly on the indices expressed in local currency and secondly on the indices recomputed in US Dollars. Recomputation of local indices in US Dollars is done to correct for possible trends in the levels of stock market indices caused by a declining or advancing exchange rate of the local currency against the US Dollar. If the US-based trader holds no trading position in the stock market index, then the US risk-free interest rate is earned. Summarized we examine the following trading cases:


  Trader Index in Profits in
Trading case 1 local trader local currency local currency
Trading case 2 US trader local currency US Dollars
Trading case 3 US trader US Dollars US Dollars

We refer to section 3.4 for a discussion on how the technical trading rule profits are computed. If 0 and 0.25% costs per trade are implemented, then for trading case 3 tables 5.3 and 5.4 show for each local main stock market index some statistics of the best strategy selected by the mean return criterion. Column 2 shows the parameters of the best strategy. In the case of a moving-average (MA) strategy these parameters are ``[short run MA, long run MA]'' plus the refinement parameters ``[%-band filter, time delay filter, fixed holding period, stop-loss]''. In the case of a trading range break, also called support-and-resistance (SR), strategy, the parameters are ``[the number of days over which the local maximum and minimum is computed]'' plus the refinement parameters as with the moving averages. In the case of a filter (FR) strategy the parameters are ``[the %-filter, time delay filter, fixed holding period]''. Columns 3 and 4 show the mean yearly return and excess mean yearly return of the best-selected strategy over the buy-and-hold benchmark, while columns 5 and 6 show the Sharpe ratio and excess Sharpe ratio of the
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