The profitability of trading US stocks in Quarter 4 - evidence from trading signals emitted by SOI and RSI

ABSTRACT

Since the yields of trading stocks are affected by numerous elements, this study aims to explore whether the profitability of trading stock with the use of technical trading rules, such as Stochastic Oscillator Indicators (SOI) and Relative Strength Index (RSI), would matter in the fourth quarter of the year. By employing the data of Dow Jones 30 (DJI 30) and NASDAQ 100 (NDX100) from 2011 to 2020 and from 1991 to 2020, this study reports that investors applying SOI and RSI would have higher cumulative abnormal returns (CARs) in Quarter 4 as compared with those in Quarters 1–3, respectively. The revealed findings indicate that the quarterly effect should be taken into account by investors when trading DJI 30 and NDX100, the representative indices for US stock markets. More importantly, this study may contribute to the existing literature due to the rare discussion of this interesting issue in the past research.

KEYWORDS:

• Cumulative abnormal returns (CARs)
• relative strength index (RSI)
• stochastic oscillator indicator (SOI)
• quarterly effect

JEL CLASSIFICATION:

• G02
• G11
• G14

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ The data is furtherly separated into two sub-periods (i.e. 2011–2015 and 2016–2020) for comparison. The results stemming from sub-periods are similar to those of employing overall data as shown in Table 2. Besides, Table 2 reveals higher CAR(5)s in Quarter 4 as compared with CAR(5)s in Q1, Q2, and Q3, individually.