best-selected strategy over the buy-and-hold benchmark. Column 7 shows the maximum cumulative loss the best strategy generates. Columns 8, 9 and 10 show the number of trades, the percentage of profitable trades and the percentage of days profitable trades last. Finally, the last column shows the standard deviation of the returns of the indices during profitable trades divided by the standard deviation of the returns of the indices during non-profitable trades.
To summarize, for trading case 3 table 5.6A (i.e. table 5.6 panel A) shows for each index the mean yearly excess return over the buy-and-hold benchmark of the best strategy selected by the mean return criterion, after implementing 0, 0.10, 0.25, 0.50, 0.75 and 1% costs per trade. This wide range of costs captures a range of different trader types. For example, floor traders and large investors, such as mutual funds, can trade against relatively low transaction costs in the range of 0.10 to 0.25%. Home investors face higher costs in the range of 0.25 to 0.75%, depending whether they trade through the internet, by telephone or through their personal account manager. Next, because of the bid-ask spread, extra costs over the transaction costs are faced. By examining a wide range of 0 to 1% costs per trade, we belief that we can capture most of the cost possibilities faced in reality by most of the traders. At the bottom of table 5.6A, the row labeled ``Average 3'' shows for each transaction cost case the average over the results for trading case 3 as presented in the table. For comparison with the other two trading cases the row labeled ``Average 1'' shows the average over the results if trading case 1 is examined and the row labeled ``Average 2'' shows the average over the results if trading case 2 is examined.
Table 5.6A clearly shows that for each stock market index the best technical trading strategy selected by the mean return criterion is capable of beating the buy-and-hold benchmark, even after correction for transaction costs. If transaction costs increase from 0 to 1% per trade, then it can be seen that the excess returns decline on average from 49.14 to 17.22%. However, even in the large 1% costs per trade case, the best technical trading strategy is superior to the buy-and-hold strategy. The lowest excess returns are found for the West European stock market indices, while the highest excess returns are found for the Asian and Latin American stock market indices. No large differences are found between the three trading cases. The results, as summarized by the averages in the bottom rows of table 5.6A, are similar.
From table 5.3 it can be seen that in the case of zero transaction costs the best-selected strategies are mainly strategies that generate a lot of signals. Trading positions are held for only a few days. For example, the best technical trading strategy found for the MSCI World Index is a single crossover moving-average rule, with no extra refinements, which generates a signal when the price series crosses a 2-day moving average. The mean yearly