PROFITABILITY OF THE MOVING AVERAGES TECHNICAL TRADING RULES IN AN EMERGING STOCK MARKET: A STUDY OF STOCKS LISTED IN PAKISTAN STOCK EXCHANGE
Keywords:
Technical Analysis, Individual Stocks, Moving Average (MA), Buy and Hold Strategy, Pakistan Stock Exchange (PSX)
Abstract
This study examines the profitability of Moving Averages(MA) timing strategy over the buy and hold strategy for individual stocks listed at Pakistan Stock Exchange (PSX).We applied Han, Yang, and Zhou (2013), methodology to individual stock returns and found inconclusive evidence of MA timing strategy’s predictive ability to earn higher returns over buy and hold strategy. We also report market risk-adjusted returns to remove any market movement effects and apply alternative moving averages lag lengths to check the robustness of our results. We observe individual stock returns are noisier than portfolio returns and the simple technical trading rule of moving average lack the ability to predict individual stock returns. We propose the use of more complex trading rules in future studies to ascertain the profitability of technical trading rules in individual stocks.
References
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Chang, Y. H., Chan, C. C., & Chiang, Y. C. (2014). Volume Information
and the Profitability of Technical Trading. Asia-Pacific Journal
of Financial Studies, 43(2), 249-272.
Chang, Y. H., Jong, C. C., & Wang, S. C. (2017). Size, trading volume,
and the profitability of technical trading. International Journal
of Managerial Finance, 13(4), 475-494.
Chong, T. T.-L., & Ip, H. T. S. (2009). Do momentum-based strategies
work in emerging currency markets? Pacific-Basin Finance Journal, 17(4), 479-493.
Coakley, J., Marzano, M., & Nankervis, J. (2016). How profitable are FX
technical trading rules? International Review of Financial Analysis, 45, 273-282.
de Souza, M. J. S., Ramos, D. G. F., Pena, M. G., Sobreiro, V. A., &
Kimura, H. (2018). Examination of the profitability of technical
analysis based on moving average strategies in BRICS. Financial Innovation, 4(1), 3.
Eljelly, A. M. (2004). Liquidity-profitability tradeoff: An empirical
investigation in an emerging market. International journal of
commerce and management, 14(2), 48-61.
Fernández-Pérez, A., Fernández-Rodríguez, F., & Sosvilla-Rivero, S.
(2012). Exploiting trends in the foreign exchange markets.
Applied Economics Letters, 19(6), 591-597.
Fernández-Rodríguez, F., Sosvilla-Rivero, S., & Andrada-Felix, J. (2003).
Technical analysis in foreign exchange markets: evidence from
the EMS. Applied Financial Economics, 13(2), 113-122.
Gunasekarage, A., & Power, D. M. (2001). The profitability of moving
average trading rules in South Asian stock markets. Emerging
Markets Review, 2(1), 17-33.
Han, Y., Yang, K., & Zhou, G. (2013). A new anomaly: The cross-sectional
profitability of technical analysis. Journal of Financial and
Quantitative Analysis, 48(05), 1433-1461.
Katusiime, L., Shamsuddin, A., & Agbola, F. W. (2015). Foreign exchange
market efficiency and profitability of trading rules: Evidence
from a developing country. International Review of Economics & Finance, 35, 315-332.
Khan, M. A., Khan, I., & Ahmad, D. A. (2017). Evaluating Post Merger
Pakistan Stock Exchanges’ Market Efficiency, Journal of
Business and Tourism, 3(2),139-149.
McKenzie, M. D. (2007). Technical trading rules in emerging markets and
the 1997 Asian currency crises. Emerging Markets Finance and Trade, 43(4), 46-73.
Tajaddini, R., & Crack, T. F. (2012). Do momentum-based trading strategies
work in emerging currency markets? Journal of International
Financial Markets, Institutions and Money, 22(3), 521-537.
Yu, H., Nartea, G. V., Gan, C., & Yao, L. J. (2013). Predictive ability and
profitability of simple technical trading rules: Recent evidence
from Southeast Asian stock markets. International Review of
Economics & Finance, 25, 356-371.
artificial stock market. In The economy as an evolving complex
system II (pp. 31-60). CRC Press.
Chang, Y. H., Chan, C. C., & Chiang, Y. C. (2014). Volume Information
and the Profitability of Technical Trading. Asia-Pacific Journal
of Financial Studies, 43(2), 249-272.
Chang, Y. H., Jong, C. C., & Wang, S. C. (2017). Size, trading volume,
and the profitability of technical trading. International Journal
of Managerial Finance, 13(4), 475-494.
Chong, T. T.-L., & Ip, H. T. S. (2009). Do momentum-based strategies
work in emerging currency markets? Pacific-Basin Finance Journal, 17(4), 479-493.
Coakley, J., Marzano, M., & Nankervis, J. (2016). How profitable are FX
technical trading rules? International Review of Financial Analysis, 45, 273-282.
de Souza, M. J. S., Ramos, D. G. F., Pena, M. G., Sobreiro, V. A., &
Kimura, H. (2018). Examination of the profitability of technical
analysis based on moving average strategies in BRICS. Financial Innovation, 4(1), 3.
Eljelly, A. M. (2004). Liquidity-profitability tradeoff: An empirical
investigation in an emerging market. International journal of
commerce and management, 14(2), 48-61.
Fernández-Pérez, A., Fernández-Rodríguez, F., & Sosvilla-Rivero, S.
(2012). Exploiting trends in the foreign exchange markets.
Applied Economics Letters, 19(6), 591-597.
Fernández-Rodríguez, F., Sosvilla-Rivero, S., & Andrada-Felix, J. (2003).
Technical analysis in foreign exchange markets: evidence from
the EMS. Applied Financial Economics, 13(2), 113-122.
Gunasekarage, A., & Power, D. M. (2001). The profitability of moving
average trading rules in South Asian stock markets. Emerging
Markets Review, 2(1), 17-33.
Han, Y., Yang, K., & Zhou, G. (2013). A new anomaly: The cross-sectional
profitability of technical analysis. Journal of Financial and
Quantitative Analysis, 48(05), 1433-1461.
Katusiime, L., Shamsuddin, A., & Agbola, F. W. (2015). Foreign exchange
market efficiency and profitability of trading rules: Evidence
from a developing country. International Review of Economics & Finance, 35, 315-332.
Khan, M. A., Khan, I., & Ahmad, D. A. (2017). Evaluating Post Merger
Pakistan Stock Exchanges’ Market Efficiency, Journal of
Business and Tourism, 3(2),139-149.
McKenzie, M. D. (2007). Technical trading rules in emerging markets and
the 1997 Asian currency crises. Emerging Markets Finance and Trade, 43(4), 46-73.
Tajaddini, R., & Crack, T. F. (2012). Do momentum-based trading strategies
work in emerging currency markets? Journal of International
Financial Markets, Institutions and Money, 22(3), 521-537.
Yu, H., Nartea, G. V., Gan, C., & Yao, L. J. (2013). Predictive ability and
profitability of simple technical trading rules: Recent evidence
from Southeast Asian stock markets. International Review of
Economics & Finance, 25, 356-371.
Published
2018-12-15
How to Cite
Arif, M., Laghari, A., & Advani, A. (2018). PROFITABILITY OF THE MOVING AVERAGES TECHNICAL TRADING RULES IN AN EMERGING STOCK MARKET: A STUDY OF STOCKS LISTED IN PAKISTAN STOCK EXCHANGE. Journal of Business Strategies, 12(2), 165-176. Retrieved from http://greenwichjournals.com/index.php/businessstudies/article/view/347
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