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Predictive ability and profitability of simple technical trading rules: Recent evidence from Southeast Asian stock markets

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Listed:
  • Yu, Hao
  • Nartea, Gilbert V.
  • Gan, Christopher
  • Yao, Lee J.

Abstract

This study investigates whether the moving average and trading range breakout rules can forecast stock price movements and outperform a simple buy-and-hold strategy after adjusting for transaction costs over the period from January 1991 to December 2008. The empirical results show that the trading rules have stronger predictive power in the emerging stock markets of Malaysia, Thailand, Indonesia, and the Philippines than in the more developed stock market of Singapore consistent with earlier studies. In addition, the short-term variants of the technical trading rules have better predictive ability than long-term variants. However, unlike earlier studies we show that transaction costs can eliminate the trading profits implying weak-form efficiency in most stock markets during our study period further suggesting that these markets have become more informationally efficient over time. Our results highlight the need to constantly revisit statements about the efficiency of economically dynamic and rapidly growing emerging stock markets.

Suggested Citation

  • Yu, Hao & Nartea, Gilbert V. & Gan, Christopher & Yao, Lee J., 2013. "Predictive ability and profitability of simple technical trading rules: Recent evidence from Southeast Asian stock markets," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 356-371.
    • Handle: RePEc:eee:reveco:v:25:y:2013:i:c:p:356-371
    DOI: 10.1016/j.iref.2012.07.016
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    More about this item

    Keywords

    Technical trading rules; Southeast Asia; Efficient market hypothesis (EMH); Transaction costs;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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