Technical Analysis - Self Fulfilling Prophecy or informed trading detection Art?

Analysts issuing recommendations regarding financial assets future performance are grossly divided to two schools of thought – fundamental analysts and technical analysts.

Since the late 1980's academic scholars are united by the belief that markets are, at least, semi strong efficient and that both technical and fundamental analysis has no ability to predict future returns.

Professor Doron Avramov is a world renowned professor of finance and he will present his latest innovative academic study on the subject of the real time economic value of technical versus fundamental analysis.

After Professor Avramov's presentation we will hold a panel hosted by the Israel Financial Engineering Association (www.ifea.co.il (http://www.ifea.co.il/)) attended by startups founders that have created technologies related to analyst's recommendations investment strategies, Algotrading practitioner and Data scientist to discuss the study results, insights and potential real world applications.

Panel agenda:

1. Given the article results, should FinTech companies creating technologies related to analyst's recommendations investment strategies pay higher attention to technical analyst's recommendations compared fundamental analysts recommendations?
2. Can market practitioners use data science tools (data mining, machine learning and AI methods) to successfully analyze the recommendations technical analysts in order to detect proprietary, publicly unknown technical analysis rules and methods to create Alpha (abnormal returns)?

Talking Numbers: Technical versus Fundamental Recommendations
Doron Avramov, Guy Kaplanski, Haim Levy

Abstract:
According to the market efficiency hypothesis the market is weakly, semi strongly or strongly efficient if prices reflect all historical prices information, all public information or all existing information, respectively. Since the late 1980's academic scholars are united by the belief that markets are, at least, semi strong efficient and that both technical and fundamental analysis has no ability to predict future returns. Few academia scholar and market practitioners even defined Technical analysis as a self fulfilling prophecy.
A new innovative, yet to be release, article by international leading academic scholars Israeli Professors Doron Avramov, Haim Levi and Guy Kaplanski uncover different, rather surprising results.
The paper employs a novel dataset from “Taking Numbers”, a CNBC and Yahoo Finance leading media broadcast simultaneously featuring fundamental and technical recommendations before and during the market open. Dual recommendations are made by an elite group of highly experienced analysts representing prominent institutions to assess the economic value of technical and fundamental recommendations covering a comprehensive list of asset classes.
Consistent with the semi-strong market efficiency hypothesis, the authors show fundamental analysts has no ability, whatsoever, to predict future returns on the various asset classes. Surprisingly, technical analysts exhibits significant, robust predicting ability of individual stock abnormal returns, not only for an immediate trading on recommendations, but also for a few months following the broadcast. Results remain intact even after accounting for reasonable transaction costs and controlling for common risk factors like firm’s characteristics, past returns, industry effects, analyst’s gender, potential immediate impact of the broadcast, transaction costs, and outliers. Altogether, the evidence shows that technicians display rather impressive stock-picking skills, while fundamentalists provide no value.