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Does the Dogs of the Dow Theory Work at the Sectoral Level?

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Listed:
  • Doh-Khul Kim
  • Michelle Nguyen
  • Kyle Arbet

Abstract

One of popular theories in technical analysis is the Dogs of the Dow (DoD) theory. According to this strategy, the average market can be outperformed using 30 firms of Dow Jones Industrial Average (DJIA) index. Since DoD was introduced, there have been numerous studies on the validity of the theory. However, only contradicting results have been found, so the research has produced no robust consensus on the theory. In addition, most of the research was performed using aggregate stock market data. The purpose of our research is to determine whether the DoD theory is valid at the sectoral level. We find that returns of top 5 highest dividend-yield firms are higher than average return of each sector. However, the additional returns of those 5 firms are not meaningful enough if we take into account tax on profits and trading costs, which does not validate the DoD theory at the sectoral level.

Suggested Citation

  • Doh-Khul Kim & Michelle Nguyen & Kyle Arbet, 2020. "Does the Dogs of the Dow Theory Work at the Sectoral Level?," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 12(9), pages 1-46, September.
    • Handle: RePEc:ibn:ijefaa:v:12:y:2020:i:9:p:46
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    References listed on IDEAS

    as
    1. Da Silva, Andre L. C., 2001. "Empirical tests of the Dogs of the Dow strategy in Latin American stock markets," International Review of Financial Analysis, Elsevier, vol. 10(2), pages 187-199.
    2. Terence Tai-Leung Chong & Kin Keung Luk, 2010. "Does the 'Dogs of the Dow' strategy work better in blue chips?," Applied Economics Letters, Taylor & Francis Journals, vol. 17(12), pages 1173-1175.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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