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History of share prices and market efficiency of the Madrid general stock index

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  • Metghalchi, Massoud
  • Chen, Chien-Ping
  • Hayes, Linda A.

Abstract

We apply Moving Average (MA), Relative Strength Indicator (RSI), Moving Average Convergence Divergence (MACD), and trading breakout (TBO) techniques to investigate the weak-form market efficiency of the Madrid General Stock Index, Índice General de la Bolsa de Madrid (IGBM), from 1/2/1975 to 12/31/2012. The empirical results not only strongly validate the predictive power of trading rules with robust statistical significance in all three sub-periods over the thirty-eight years, but also provide the possible strategies to outperform the buy-and-hold strategy with the consideration of transaction costs and risk. This supports the argument against weak-form market efficiency of the IGBM.

Suggested Citation

  • Metghalchi, Massoud & Chen, Chien-Ping & Hayes, Linda A., 2015. "History of share prices and market efficiency of the Madrid general stock index," International Review of Financial Analysis, Elsevier, vol. 40(C), pages 178-184.
    • Handle: RePEc:eee:finana:v:40:y:2015:i:c:p:178-184
    DOI: 10.1016/j.irfa.2015.05.016
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    2. Guo, Yaoqi & Yao, Shanshan & Cheng, Hui & Zhu, Wensong, 2020. "China's copper futures market efficiency analysis: Based on nonlinear Granger causality and multifractal methods," Resources Policy, Elsevier, vol. 68(C).
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    4. Ali, Sajid & Shahzad, Syed Jawad Hussain & Raza, Naveed & Al-Yahyaee, Khamis Hamed, 2018. "Stock market efficiency: A comparative analysis of Islamic and conventional stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 503(C), pages 139-153.
    5. C. Veeramani & R. Venugopal & S. Muruganandan, 2023. "An Exploration of the Fuzzy Inference System for the Daily Trading Decision and Its Performance Analysis Based on Fuzzy MCDM Methods," Computational Economics, Springer;Society for Computational Economics, vol. 62(3), pages 1313-1340, October.
    6. Mamdouh Abdulaziz Saleh Al-Faryan & Everton Dockery, 2021. "Testing for efficiency in the Saudi stock market: does corporate governance change matter?," Review of Quantitative Finance and Accounting, Springer, vol. 57(1), pages 61-90, July.
    7. dos Santos Maciel, Leandro, 2023. "Brazilian stock-market efficiency before and after COVID-19: The roles of fractality and predictability," Global Finance Journal, Elsevier, vol. 58(C).
    8. Farhang Niroomand & Massoud Metghalchi & Massomeh Hajilee, 2020. "Efficient market hypothesis: a ruinous implication for Portugese stock market," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 44(4), pages 749-763, October.
    9. Ma, Yao & Yang, Baochen & Su, Yunpeng, 2020. "Technical trading index, return predictability and idiosyncratic volatility," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 879-900.
    10. Maciel, Leandro, 2021. "A new approach to portfolio management in the Brazilian equity market: Does assets efficiency level improve performance?," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 38-56.
    11. Shahzad, Syed Jawad Hussain & Nor, Safwan Mohd & Mensi, Walid & Kumar, Ronald Ravinesh, 2017. "Examining the efficiency and interdependence of US credit and stock markets through MF-DFA and MF-DXA approaches," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 471(C), pages 351-363.
    12. Batten, Jonathan A. & Lucey, Brian M. & McGroarty, Frank & Peat, Maurice & Urquhart, Andrew, 2018. "Does intraday technical trading have predictive power in precious metal markets?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 52(C), pages 102-113.
    13. Aloui, Chaker & Shahzad, Syed Jawad Hussain & Jammazi, Rania, 2018. "Dynamic efficiency of European credit sectors: A rolling-window multifractal detrended fluctuation analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 506(C), pages 337-349.
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    More about this item

    Keywords

    Technical analysis; Trading indicators; Market efficiency; Buy and hold strategy;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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