Is technical analysis informative in UK stock market? Evidence from decomposition-based vector autoregressive (DVAR) model

The paper proposes a new approach — The decomposition-based vector autoregressive (DVAR) model to scrutinize the predictability of the UK stock market. Empirical studies performed on the monthly British FTSE100 index over 1984–2012 confirm that the DVAR model does provide informative forecasts for both in-sample and out-of-sample forecasts. Trading strategies based on the DVAR forecasts can significantly beat the simple buy-and-hold, which demonstrates the valuable information provided by technical analysis in the UK stock market.

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