Lost Decade, Market Efficiency and Technical Trading Rules: Evidence from Greece

Main Article Content

Massoud Metghalchi

Abstract

We apply several well-known technical indicators to the daily data for the Athens Composite Share Price from 1/2/2000 to 12/31/2012.  Our findings strongly support the predictive power of technical trading rules; further, we ask whether this predictive power of technical analysis can be exploited to beat the profitability of the buy-and-hold strategy considering both transaction costs and risk.  We conclude that it is possible to beat the buy-and-hold strategy even considering transaction costs and risk.

Article Details

Section
Articles
Author Biography

Massoud Metghalchi, University of Houston - Victoria

Professor of finance, school of business administration, University of Houston victoria

References

Alexander, S. (1964) Price movements in speculative markets: trends or random walks, Industrial Management Review, 2, 25-46.

Appel, G. (1974). Double Your Money Every Three Years. Brightwaters, NY: Windsor Books.

Bessembinder, H. and Chan, K. (1995) The profitability of technical trading rules in the Asian stock markets, Pacific-Basin Finance Journal, 3, 257-284.

Bessembinder, H. and Chan, K. (1998) Market efficiency and the returns to technical analysis, The Journal of the Financial Management Association, 27, 5-17.

Brock, W., Lakonishok, J., and LeBaron, B. (1992) Simple technical trading rules and the stochastic properties of stock returns, Journal of Finance, 47, 1731-1764.

Chang, Y., Metghalchi, M. and Chan, C. (2006) Technical trading strategies and cross-national information linkage: the case of Taiwan stock market, Applied Financial Economics, 16, 731-743.

Chen, C-W., Huang, C-S., and Lai, H-W. (2011) Data snooping on technical analysis: evidence from the Taiwan stock market”, Review of Pacific Basin Financial Markets and Policies, 14, 195-212.

Chong, T., Cheng, S. & Wong, E. (2010) Comparison of stock market efficiency of the BRIC countries”, Technology and Investment, 1, 235-238.

Coutts, A., and Cheung, K.C. (2000), “Trading rules and stock returns: some preliminary short run evidence from the Hang Seng 1985-1997”, Applied Financial Economics, 10, pp. 579-686.

Domowitz, I., Glen, J, and A. Madhaven. (2001) Liquidity, volatility, and equity trading costs across countries and over time, International Finance, 4, 221-255.

Draper, P. and Paudyal K. (1997) Microstructure and seasonality in the UK equity market, Journal of Business Finance and Accounting, 24, 1177-1204.

Dunis, C. and Y.X. Chen (2005), ‘Alternative Relative Models for Risk Management and Trading: An Application to the EUR/USD and UDS/JPY Rates’. Derivatives Use, Trading & Regulations, 11:126-156.

Ergul, A., Holmes, P., and Priestley, R. (1997) Technical analysis, trading volume and market efficiency: evidence from an emerging market, Applied Financial Economics, 7, 361-65.

Fama, E. (1965) The behavior of stock market prices, Journal of Business, 38, 34-105.

Fama, E. (1970) Efficient capital markets: a review of theory and empirical work, Journal of Finance, 25, 383-417.

Fama, E. and Blume, M. (1966) Filter rules and stock market trading profits, Journal of Business, 39, 226-341.

Fang J, Jacobsen B. Qin Y. (2014) Predictability of the simple technical trading rules: An out-of-sample test, Review of Financial Economics, January, 23(1):30-45

Gencay, R. (1998) Optimization of technical trading strategies and profitability in security markets, Economics Letters, 59, 249-254.

Granville, J (1963) New Key to Stock Market Profits. Prentice Hall, Englewood Cliffs, NJ.

Granger, C. and Morgenstern, O. (1963) Spectral analysis of New York stock market prices, Kyklos, 16, 1-27.

Himmelmann, A. Schiereck, D. Simpson M. W. Zschoche, M. (2012) Long-term reactions to large stock price declinesand increases in the European stock market: a note on market efficiency, Journal of Economics and Finance, 36, 400-423.

Hsu, P. H., and Kuan, C. M. (2005), “Re-Examining the Profitability of Technical Analysis with White’s Reality Check,” Journal of Financial Econometrics, 3(4), 606-628.

Hudson, R., Dempsey, M., and Keasey, K. (1996), “A Note on weak Form of Efficiency of Capital Markets: The Application of Simple Technical trading Rules to UK Stock Prices- 1935 to 1994”, Journal of Banking and Finance, (20), pp. 1121-1132.

Jensen, M. and Benington, G. (1970) Random walks and technical theories: some additional evidence, Journal of Finance, 25, 469-82.

Kwon, K. and Kish, R. (2002) Technical trading strategies and return predictability: NYSE, Applied Financial Economics, 12, 639-53.

Lane, G. C. (1985) Lane’s Stochastic: The Ultimate Oscillator” Technical Analysis of Stocks and Commodities, May, 87-90.

Larson, A. (1960) Measurement of random process in futures prices, Food Research Institute, 1, 313-24.

Le Baron, B. (2012) Rosenberg Global Financial Briefs 5, Brandeis University, Rosenberg Institute of Global Finance, International Business School.

Lee C. T. and Tzen J.S. (2013) Trend-Oriented Training for Neural Networks to Forecast Stock Markets, Asia Pacific Management Review 18 (2) (2013) 181-195.

Lento, C. (2007), “Tests of Technical Trading Rules in the Asian-Pacific Equity Markets: A Bootstrap Approach”. Academy of Accounting & Financial Studies Journal, 11(2): 51-73.

Lesmond, D., M. Schill and C. Zhou (2004), ‘The illusory nature of momentum profits’, Journal of Financial Economics, 71: 349-380.

Lucke, B. (2002) Are technical trading rules profitable? Evidence for head-and- shoulder rules. Applied Economics, 35, 33-40.

Lukac, L. P. Brorsen, B. W. & Irwin S.H. (1988) A test of futures market disequilibrium using twelve different technical trading systems, Applied Economics, 20, 623-639.

Mandelbrot, B. (1963) The variation of certain speculative prices, Journal of Business, 36, 394-419.

Menkhoff, L. and Taylor, M. (2007) The obstinate passion of foreign exchange professionals: technical analysis, Journal of Economic Literature, 45, 936-972.

Metghalchi M. and Chang Y. (2003) Profitable technical trading rules for the italian stock market. Rivista Internationale Di Scienze Economiche e Commerciali, 4, 433-450.

Metghalchi, M., Chang, Y. & Marcucci, Y. (2008) Is the Swedish stock market efficient? Evidence from some simple trading rules, International Review of Financial Analysis, 17, 475- 490.

Metghalchi, M., Chang, Y. & Marcucci, Y. (2012) Are moving average trading rules profitable? Evidence from the European stock markets, Applied Economics, 12, 1539-1559.

Metghalchi, M, Hajeele M, and L. Hayes, (2013) "Market Efficiency and Profitability of Technical Trading Rules: Evidence from Vietnam", the Journal of Prediction Markets. Vol. 7, No.2.

Massoud Metghalchi, Adriano F. Pinhoa and Adriana P. M. Sarmentoa (2014) “The Efficiency of Emerging Capital Markets: the Case of Poland” the Journal of Prediction Markets. 8, 26-41.

Milionis, A. E. & Papanagiotou, E. (2011) A test of significance of the predictive power of the moving average trading rule of technical analysis based on sensitivity analysis: application to the NYSE, the Athens Stock Exchange and the Vienna stock exchange. Implications for weak-form market, Applied Financial Economics, 21, 421-436.

Mitra, S. K. (2011) Usefulness of Moving Average Based Trading Rules in India, International Journal of Business and Management, 6, No. 7, 199-206.

Murphy, J. (1999) Technical Analysis of the Financial Markets, New York Institute of Finance.

Neely C.J. and P. A. Weller (2011) Technical Analysis in the Foreign Exchange Market, Federal Reserve Bank of St. Louis, Working Paper 2011-001B.

Osborne, M. (1962) Periodic structure in the Brownian motion of stock prices, Operations Research, 10, 345-79.

Pätäri, E. and Vilska, M. (2014) Performance of moving average trading strategies over varying stock market conditions: the Finnish evidence. Applied Economics, 46 Issue 24, p2851-2872.

Park, C. H., and Irwin, S. H. (2007) What do we know about the profitability of technical analysis? Journal of Economic Surveys, 21, 786-826.

Pring, M.J. (1991) Technical Analysis: Explained, McGraw-Hill Co.

Pruitt, S. and White, R. (1998) The CRISMA trading system: who says technical analysis can’t beat the market?, Journal of Portfolio Management, 14, 55-58.

Raj, M. and Thurston, D. (1996), “Effectiveness of simple technical trading rules in the Hong Kong futures markets”, Applied Economics Letters, 3, pp. 33-36.

Ratner, M. and Leal, R.P.C. (1999) Test of technical trading strategies in the emerging equity markets of Latin America and Asia, Journal of Banking and Finance, 23, 1887-1905.

Ready, M. (2002) Profits from technical trading rules, Financial Management, autumn, 31, 43-61.

Sweeney, R. (1986) Beating the foreign exchange market, Journal of Finance, 41, 163-182.

Szakmary, A., Davidson, W.N., and Schwarz T.V. (1999), “Filter Tests in Nasdaq Stocks”, The Financial Review, 34, pp. 45-70.

Taylor, S.J. (2000), ‘Stock index and price dynamics in the UK and US: New Evidence from Trading Rules and statistical Analysis’, European Journal of Finance,6: 39-69.

Thapa, c. and Poshakwale, S. (2010) International equity portfolio allocations and transaction costs. Journal of Banking and Finance, 34, 2627-2638.

Van Horn, J.C. and Parker, G.C. (1967) The random walk theory: an empirical test, Financial Analyst Journal, 23, 87-92.

Wilder, W. (1978) New Concepts in Technical Analysis, Trend Research, McLeansville, NC

Zhou, Y. and Zhou, G. (2009) Technical analysis: an asset allocation perspective on the use of moving averages, Journal of Financial Economics, 92, 519-544.