Technical analysis and the stochastic properties of the Jordanian stock market index return

Abstract

Purpose

To investigate the performance of moving average trading rules in an emerging market context, namely that of the Jordanian stock market.

Design/methodology/approach

The conditional returns on buy or sell signals from actual data are examined for a range of trading rules. These are compared with conditional returns from simulated series generated by a range of models (random walk with a drift, AR (1), and GARCH‐(M)) and the consistency of the general index series with these processes is examined. Sensitivity analysis of the impact of transaction costs is conducted and standard statistical testing is extended through the use of bootstrap techniques.

Findings

The empirical results show that technical trading rules can help to predict market movements, and that there is some evidence that (short) rules may be profitable after allowing for transactions costs, although there are some caveats on this.

Originality/value

New results for the Jordanian market; use of sensitivity analysis to investigate robustness to variations in transactions costs.

Citation

Atmeh, M.A. and Dobbs, I.M. (2006), "Technical analysis and the stochastic properties of the Jordanian stock market index return", Studies in Economics and Finance, Vol. 23 No. 2, pp. 119-140. https://doi.org/10.1108/10867370610683914