Mix and match – Combining directors’ dealings and technical analysis indicators
October 10, 2024
Market timing is to predict developments and to move investments accordingly.1 It is difficult to be spot on but it may not be all that important according to Warren Buffett’s popularized quote: “It is better to be approximately right than precisely wrong.”2 Investors use trading signals and technical analysis indicators to predict stock developments. Directors’ dealings are a scientifically proven trading signal to yield superior investment returns.3 Amongst others, technical indicators include the average directional index (ADX) and relative strength index (RSI).4 This leads to the question: Can the combination of directors’ dealings with technical analysis indicators improve replication performance? To answer this question BOSS STOCKS analyzed 130+ directors’ dealings (stock acquisitions) in the German DAX in 2023.
Combining directors’ dealings with selected technical analysis indicators increases replication performance
- The results show that replicating directors’ dealings is successful even with a simple strategy: That is, buying stocks for the opening share price of the day that follows the day of the release and holding for 1 week/1 month/3 months/6 months led to average investment returns of 1%/2%/3%/8%.
- Combining directors’ dealings with the RSI oversold attribute further improved the investment returns across all timeframes. The increases are largest in relative and absolute terms for 1 month (+3 p.p.) and 5 months (+10 p.p.).
- Linking directors’ dealings with the ADX negative trend also yielded higher investment returns across all timeframes. The outcomes range above the directors’ dealings and below the combination of directors’ dealings with the RSI oversold attribute.
- Notably, the maximum positive returns are greater than the minimum negative returns across all observations. This points to asymmetric risk reward (for more depth on this please see our previous blog post).
Discover directors’ dealings for strong investment returns with BOSS STOCKS
The results suggest that linking managers’ transactions with selected technical analysis indicators improves replication performance. BOSS STOCKS helps you link directors’ dealings and technical analysis indicators. Free sign up to test the product before market launch.