Filter rules: follow the trend or take the contrarian approach?

Abstract

This article compares a trending approach to the filter trading rule against a contrarian approach. It is found that, after adjusting for transaction costs, the contrarian approach consistently outperforms the trending approach and is able to earn returns in excess of the buy-and-hold trading strategy. The significance and the robustness of the results are supported by a bootstrap simulation and sub-period analysis, respectively.