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Stock Market Trends during the Crisis: An Analysis based on Taylor’s Methodology
Adrián Fernández-Pérez, Fernando Fernández-Rodríguez, Julián Andrada-Félix

Abstract
We have tested the random walk hypothesis against the existence of trends in the main stock market indexes before and during the 2008 financial crisis. With that end, Taylor’s (1980) trend price model was employed. In the indexes where there is evidence of trend patterns, a technical trading strategy, proposed by Taylor to obtain extraordinary profits for trend markets, was implemented. Due to the complexity of the log likelihood function of the model, in order to estimate the parameters, a genetic algorithm was employed. In the case of developed, BRIC and Asian-Pacific indexes, our results show that before the crisis, Sharpe’s ratios of Taylor’s strategy are lower than the results of the B&H strategy. During the crisis the results are opposites and Sharpe’s ratios of Taylor’s strategy improve the results of the B&H strategy. For the rest of developing economies the results are diverse.

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