A Simple and Effective Trading Rule for Individual Investors

This study advocates the use of a simple trading strategy that is shown to outperform a passive buy and hold the market strategy. Based on prior studies thatfind long-term stock price responses to economic news, the strategy utilizes the announcement of dis- count rate changes to predict (and profit from) market movements. Statistical testing indicates that the strategy correctly predicts market movements. Furthermore, the results indicate that the proposed trading strategy produces higher risk adjusted returns than a buy and hold strategy. Thus individual investors may reasonably expect to profit by following this easy to implement trading strategy.