Technical indicators and cross-sectional expected returns

Abstract

This study shows that 14 widely documented technical indicators explain cross-sectional stock returns. These indicators have lower estimation errors than the three-factor Fama–French and historical mean models. The long-short portfolios based on the cross-sectional technical signals generate substantial excess returns. These remain consistent after controlling for well-known cross-sectional return determinants, including momentum, size, book-to-market ratio, investment, and profitability. Our findings suggest that technical indicators play an important role in determining variation in cross-sectional returns.