Market Evolution to Higher-Frequency Inefficiency?

Is technology driving the profitability of technical rules in financial markets from low-frequency trading to high-frequency trading? In his March 2007 paper entitled “The Profitability of Technical Stock Trading Has Moved from Daily to Intraday Data”, Stephan Schulmeister investigates how well 2,580 widely used trend-following and contrarian technical trading rules (moving average, momentum and relative strength) exploit trend and reversal behavior of the S&P 500 Index futures markets. In estimating trading returns, he assumes: (1) that futures positions roll on the tenth day of the month from the expiring contract to the contact expiring three months later, and (2) that trading friction is 0.01% per trade. Using daily open (30-minute) data for the S&P 500 Index spot (futures) prices during 1960-2000 (1983-2006), he finds that: (more…)