On the profitability of technical trading rules based on artificial neural networks:: Evidence from the Madrid stock market

In this paper we investigate the profitability of a simple technical trading rule based on Artificial Neural Networks (ANNs). Our results, based on applying this investment strategy to the General Index of the Madrid Stock Market, suggest that, in absence of trading costs, the technical trading rule is always superior to a buy-and-hold strategy for both bear market and stable market episodes. On the other hand, we find that the buy-and-hold strategy generates higher returns than the trading rule based on ANN only for a bull market subperiod. (C) 2000 Elsevier Science S.A. All rights reserved.