The profitability of technical trading rules in the Asian stock markets

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Abstract

We assess whether some simple forms of technical analysis can predict stock price movement in Asian markets. We find the rules to be quite successful in the emerging markets of Malaysia, Thailand and Taiwan. The rules have less explanatory power in more developed markets such as Hong Kong and Japan. On average for our sample, mean percentage changes in stock indices on days that the rules emit buy signals exceed means on days that the rules emit sell signals by 0.095% per day, or about 26.8% on an annualized basis. We estimate "break-even" round-trip transactions costs (which would just eliminate gains from technical trading) to be 1.57% on average. We also find that technical signals emitted by U.S. markets have substantial forecast power for Asian stock returns beyond that of own-market signals. This is consistent with the reasoning that the technical rules identify periods when global equilibrium expected returns deviate substantially from their unconditional mean.

Original languageEnglish (US)
Pages (from-to)257-284
Number of pages28
JournalPacific-Basin Finance Journal
Volume3
Issue number2-3
DOIs
StatePublished - Jul 1995

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Keywords

  • Asian stock markets
  • Return forecastability
  • Technical analysis
  • Time-varying risk premia
  • Transaction costs

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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