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Article
Publication date: 19 August 2009

Massoud Metghalchi, Jianjun Du and Yixi Ning

This paper tests two moving average technical trading rules for four Asian markets. Our results indicate that moving average rules do indeed have predictive power and can discern…

Abstract

This paper tests two moving average technical trading rules for four Asian markets. Our results indicate that moving average rules do indeed have predictive power and can discern recurring price patterns for profitable trading. Moreover, our results support the hypothesis that technical trading rules can outperform the buy‐and‐hold strategy. Break‐even one‐way trading costs are estimated to be high for all four markets. To confirm the test outcome, robust tests based on bootstrap and the related t‐tests among the markets are also carried out. We conclude from the statistical results that moving average rules are valid and indeed have predictive power. It is implied that the trading rules may be used to design a trading strategy that will beat the buy‐and‐hold strategy in the Hong Kong, Singapore, South Korea, and Taiwan markets. The contribution of the current study is that this is the first validation test of trading rules using four markets at a similar development stage and culture tradition; and in the tests, we use most current and longer periods than the periods used in previous literature. Our robust tests are unique and considered distribution‐free.

Details

Multinational Business Review, vol. 17 no. 3
Type: Research Article
ISSN: 1525-383X

Keywords

Open Access
Article
Publication date: 1 February 2022

Khumbulani L. Masuku and Thabo J. Gopane

The study considers time-varying risk premium in investigating the capability of technical analysis (TA) to predict and outperform a buy–hold strategy in Bitcoin exchange rate…

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Abstract

Purpose

The study considers time-varying risk premium in investigating the capability of technical analysis (TA) to predict and outperform a buy–hold strategy in Bitcoin exchange rate returns.

Design/methodology/approach

The study tests the technical trading rule of fixed moving average (FMA) on daily actual and equilibrium returns of Bitcoin exchange rates. The equilibrium returns are computed using dynamic CAPM in conjunction with a VAR-MGARCH (1, 1) system. The empirical evaluation of the study uses a case study of four Bitcoin exchange rates (BTC/AUD, BTC/EUR, BTC/JPY and BTC/ZAR) for the period 19 June 2010 to 30 October 2020.

Findings

The findings are consistent with related studies in conventional foreign exchange markets that find TA to be profitable, especially in emerging markets. Nevertheless, the consideration of risk premium has the effect of reducing the abnormal returns. Also, further robust tests reveal that Bitcoin returns possess a momentum effect which prompts further study in efficient market hypothesis research.

Practical implications

The empirical findings of this study should benefit portfolio managers and active investors on the strength of TA to predict returns in a speculative market like the Bitcoin exchange rate market.

Originality/value

The study takes cognisance that cryptocurrency trading is speculative in nature which renders it a good candidate for TA methods. While there are studies that have explored the value of TA in Bitcoin exchange rates, these studies fail to incorporate the effects of time-varying risk premiums, the strength and focus of the current paper.

Details

Journal of Capital Markets Studies, vol. 6 no. 1
Type: Research Article
ISSN: 2514-4774

Keywords

Open Access
Article
Publication date: 22 November 2023

JunHyeong Jin, JiHoon Jung and Kyojik Song

The authors test the weak-form efficiency in cryptocurrency markets using the most recent and comprehensive data as of 2021. The authors apply various technical indicators to take…

Abstract

The authors test the weak-form efficiency in cryptocurrency markets using the most recent and comprehensive data as of 2021. The authors apply various technical indicators to take a long or short position on 99 cryptocurrencies and compare the 10-day returns based on the technical trading strategies to the simple buy-and-hold returns. The authors find that the trading strategies based on single indicators or the combination of two indicators do not generate higher returns than buy-and-hold returns among cryptos. These findings suggest that cryptocurrency markets are weak-form efficient in general.

Details

Journal of Derivatives and Quantitative Studies: 선물연구, vol. 32 no. 1
Type: Research Article
ISSN: 1229-988X

Keywords

Article
Publication date: 28 December 2018

Hesham I. Almujamed

The purpose of this paper is to examine the predictability of nine filter rules and test the validity of the weak form of the efficient market hypothesis for the Qatar Stock…

Abstract

Purpose

The purpose of this paper is to examine the predictability of nine filter rules and test the validity of the weak form of the efficient market hypothesis for the Qatar Stock Exchange (QSE).

Design/methodology/approach

This study adopts the filter rule strategy employed by Fifield et al. (2005), which suggests that a buy signal occurs when a share’s price increases by X percent from the previous price. This strategy recommends that the share is held until its price declines by X percent from the subsequent high price. Any price changes below X percent are ignored. Additionally, using the theory of weak-form efficiency, this paper suggests that, if a stock market is efficient, an investor cannot achieve superior results by using these trading rules. However, if market inefficiencies are present, profitable opportunities may arise. To this end, the daily closing share prices of 44 companies listed on QSE are explored for 2004–2017.

Findings

The findings propose that QSE is not weak-form efficient because security prices are predictable. As such, investors who followed filter strategies based on past price information could have made profit. Sectoral analysis findings further suggest that firms in the consumer goods and services, industrial and insurance sectors are most efficiently priced amongst the QSE-traded companies.

Practical implications

The evidence may be plausibly helpful as supporting market participants and academics that suggest that selecting filter strategy is extremely important for determining the overall profitability of the trading strategy.

Originality/value

To the best of my knowledge, this is the first study on Qatar that examines the performance of filter rules relative to a passive investor in the context of trading rules with individual share prices for a new stock market. Furthermore, this study adds to the literature through the empirical finding that technical analysts using filter strategies could generate excess returns relative to the buy-and-hold strategy on new emerging stock markets. This study also suggests the levels of transparency and accounting disclosure are limited, which may help Qatari policy makers understand the QSE context. Therefore, it might lead them to introduce regulatory changes to improve the QSE’s efficiency level.

Details

International Journal of Productivity and Performance Management, vol. 68 no. 1
Type: Research Article
ISSN: 1741-0401

Keywords

Article
Publication date: 2 May 2022

Ivelina Pavlova, Jeff Whitworth and Maria E. de Boyrie

This study explores the “Sell-in-May” effect in environmental, social and governance (ESG) indices and compares the seasonal effects in ESG equity indices with conventional equity…

Abstract

Purpose

This study explores the “Sell-in-May” effect in environmental, social and governance (ESG) indices and compares the seasonal effects in ESG equity indices with conventional equity indices.

Design/methodology/approach

The authors use ordinary least squares (OLS) models and M-estimation as a robustness check, as OLS estimates may be sensitive to outliers. The authors also employ bootstrap simulations to use the data efficiently and to test whether seasonal trading strategies can produce abnormal returns.

Findings

The regression results reveal that seasonal effects in USA ESG equity indices are similar to those in conventional equity indices. Higher returns are noticeable from November through April, mainly in ESG indices including small and medium capitalization stocks. When the authors extend the Sell-in-May strategy from October through April, the authors find that the seasonal effect is significant for multiple ESG indices, even after accounting for the January effect. Bootstrap simulations show that the Sell-in-May and Extended Sell-in-May strategies appear to beat a buy-and-hold strategy on a risk-adjusted basis and that this result is stronger in medium and small capitalization ESG indices.

Originality/value

Although previous research has considered the effectiveness of seasonal equity trading strategies and the general performance of ESG stocks, this is the first study to specifically examine the “Sell in May” effect in ESG indices. The authors also consider an “Extended” Sell-in-May strategy where stocks are purchased one month earlier and show that the strategy produces higher returns.

Details

Managerial Finance, vol. 48 no. 8
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 6 March 2009

Joel S. Sternberg and H. Doug Witte

This paper aims to show that tax‐motivated early exercise of US employee stock options can be, in principle, rationalized for bullish executives. The paper aims to show empirical…

Abstract

Purpose

This paper aims to show that tax‐motivated early exercise of US employee stock options can be, in principle, rationalized for bullish executives. The paper aims to show empirical evidence consistent with private positive information guiding the timing of the exercises.

Design/methodology/approach

The paper uses conventional event study methodology to examine the long‐run relative stock price performance of firms in which executives early exercise and maintain the acquired shares. The long‐run analysis adopts the cumulative abnormal return as well as the buy‐and‐hold methodological approach.

Findings

Tax‐motivated early exercise may be justified on the grounds that future stock appreciation can be converted to long‐term capital gains if the shares are held for over one year while, should the stock decline, shares can be sold within a year to count for short‐term losses. The empirical results reveal that executives who early exercise and continue to hold a majority of the shares acquired do so before performance in their company stock is significantly better than a benchmark.

Practical implications

Information‐based early exercise is not a harbinger of poor firm performance, as prior research has suggested. This paper illustrates that private positive information can motivate tax‐based early exercise of employee stock options. Prior research has mostly suggested it cannot. Stock retention upon early exercise indicates the optimism of the exerciser.

Originality/value

The first modeling of an exploitable tax asymmetry upon exercise of US employee stock options. The explicit separation of exercises likely based on positive inside information from those likely based on negative information or other non‐informative reasons.

Details

Studies in Economics and Finance, vol. 26 no. 1
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 1 June 2000

Parvez Ahmed, Kristine Beck and Elizabeth Goldreyer

Outlines previous research on stock market efficiency and technical trading rules in both developed and emerging markets. Uses variable moving average (VMA) models to develop five…

Abstract

Outlines previous research on stock market efficiency and technical trading rules in both developed and emerging markets. Uses variable moving average (VMA) models to develop five technical trading rules and applies them to markets in Taiwan, Thailand and The Phillippines 1994‐1999. Compares results with the US and Japan indices and a simple buy and hold strategy. Finds the VMA rules gave higher returns in Taiwan and very much higher returns in Thailand and The Phillippines, even after transaction costs, but not in Japan and the USA. Considers the reasons why and calls for further research.

Details

Managerial Finance, vol. 26 no. 6
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 9 May 2008

M. Imtiaz Mazumder, Edward M. Miller and Atsuyuki Naka

The purpose of this paper is to examine the predictability of the US‐based international mutual fund returns by investigating 2,479 daily observations for all categories of…

Abstract

Purpose

The purpose of this paper is to examine the predictability of the US‐based international mutual fund returns by investigating 2,479 daily observations for all categories of international equity, bond and hybrid mutual funds. Further, trading strategies are proposed and tested under different scenario including a proposed regulation by the Security and Exchange Commission (SEC).

Design/methodology/approach

The sample is split and the initial sub sample is used to investigate return patterns of international funds and to develop trading rules based on the predictable return patterns. Trading rules are then tested on the holdout sample.

Findings

Empirical results demonstrate statistically significant predictabilities. Various trading strategies show that the returns of both load and no‐load funds are economically significant beating a buy‐and‐hold strategy. Empirical findings are consistent across the fund categories irrespective of sizes and styles. The tested strategies are profitable even with various limits on frequency of trading, minimum holding periods and even under a recent SEC's proposed regulation. Further, possible contracting and regulatory changes are proposed to improve the efficiency in the mutual fund industry.

Originality/value

The results confirm previous findings of statistically and economically significant regularities from trading strategies that involve following the US markets. A test of SEC's proposed regulation documents that short‐term investors may benefit from active trading strategy even if the SEC's rule is implemented.

Details

Journal of Financial Regulation and Compliance, vol. 16 no. 2
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 16 October 2009

Terence Tai‐Leung Chong, Daniel Wai‐Hong Wong and Venus Khim‐Sen Liew

There is a broad consensus in the literature that spinoffs tend to create value for shareholders and exhibit positive long‐run excess returns. However, most of the prior studies…

Abstract

There is a broad consensus in the literature that spinoffs tend to create value for shareholders and exhibit positive long‐run excess returns. However, most of the prior studies are confined to the US and the European cases. The spinoff problems in Hong Kong are surprisingly under‐studied despite its important role as a global center of capital formation. In this paper, we find that there is a short‐run value creation for the Hong Kong spinoffs. However, the financial health of the spinoff companies, measured by various financial ratios, tends to deteriorate in the long‐run. In general, Hong Kong spinoffs generate negative returns to investors.

Details

Journal of Asia Business Studies, vol. 4 no. 1
Type: Research Article
ISSN: 1558-7894

Keywords

Article
Publication date: 1 August 2002

Laura Núñez‐Letamendia

Outlines the development of genetic algorithms (GA), explains how they generate solutions to problems and applies four GA models incorporating different factors (e.g. risk…

Abstract

Outlines the development of genetic algorithms (GA), explains how they generate solutions to problems and applies four GA models incorporating different factors (e.g. risk, transaction costs etc.) to financial investment strategies. Uses 1987‐1996 share price data from the Madrid Stock Exchange (Spain) and a buy‐and‐hold strategy in the IBEX‐35 index as a benchmark. Shows that all four GA models generat superior daily returns of long positions with lower risk; and discusses the variations between them in detail.

Details

Managerial Finance, vol. 28 no. 8
Type: Research Article
ISSN: 0307-4358

Keywords

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