BUY AND SELL SIGNALS ON BUCHAREST STOCK EXCHANGE
Keywords:
Capital markets, Technical Analysis, Emerging Market Integration
Abstract
Trading rules of the technical analysis are widely used in investing on the capital markets. However, prediction of the financial markets movements based on their past evolutions is in contradiction with the principles of the Efficient Market Hypothesis. In case of the emerging markets, the impact of the development markets evolutions could also be taken into consideration in establishing the trading rules. In this paper we investigate the efficiency of three simple trading rules on Romanian capital market. Two of them, Variable-Length Moving Average and Bollinger Bands, belong to the technical analysis methods, while the third is based on the impact of the shocks from New York Stock Exchange. The results indicate some significant differences between these methods of shocks’ identification.
References
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34. Loh, E., 2004. Technical Trading Rules and Market Efficiency: Evidence from the Australian Stock Exchange 1980-2002, Economics. Business School, University of Western Australia.
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36. Marshall, B. R., Cahan, R. H. and Cahan, J. M., 2008. Does intraday technical analysis in the US equity market have value?, Journal of Empirical Finance, 15(2), pp. 199-210.
37. McLean, R. D. and Pontiff, J., 2015. Does academic research destroy stock return predictability?, Journal of Finance (Forthcoming).
38. Metghalchi, M., Chang, Y. H. and Marcucci, J., 2008. Is the Swedish stock market efficient? Evidence from some simple trading rules, International Review of Financial Analysis, 17(3), pp. 475-490.
39. Murphy, J. J., 1999. Technical Analysis of the Financial Markets, New York Institute of Finance.
40. Neftci, S. N. and Policano, A. J., 1984. Can chartists outperform the market? market efficiency tests for “technical analysis”, Journal of Futures Markets, 4(4), pp. 465-478.
41. Newey, W. K. and West, K. D., 1986. A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix, Econometrica 55 (3), pp. 703-708.
42. Parisi, F. and Vasquez, A., 2000. Simple technical trading rules of stock returns: evidence from 1987 to 1998 in Chile. Emerging Markets Review, 1(2), pp. 152-164.
43. Park, C. H. and Irwin, S. H., 2004. The profitability of technical analysis: A review, AgMAS Project Research Report No. 2004-04.
44. Park, J. S. and Heaton, C., 2014. Technical trading rules in Australian financial markets, International Journal of Economics and Finance, 6(10).
45. Schulmeister, S., 2008. Components of the profitability of technical currency trading, Applied Financial Economics, 18(11), pp. 917-930.
46. Sharma, A. and Seth, N., 2012. Literature review of stock market integration: a global perspective, Qualitative Research in Financial Markets, 4(1), pp. 84-122.
47. Shefrin, H., 2008. A behavioral approach to asset pricing. Academic Press.
48. Stefanescu, R. and Dumitriu, R., 2013. Short-Term Influence of the Oil Price on Stock Prices from the Bucharest Stock Exchange, Proceedings of the 15th International Conference of Scientific Paper AFASES 2013, Brasov.
49. Stefanescu, R. and Dumitriu, R., 2015. Impact of the Shocks from NYSE on the Romanian Capital Markets, Risk in the Contemporary Economy, Proceedings Conference, pp. 371-376.
50. Treynor, J. L. and Ferguson, R., 1985. In defense of technical analysis, The Journal of Finance, 40(3), pp. 757-773.
51. Van Horne, J. C. and Parker, G. G., 1967. The random-walk theory: an empirical test, Financial Analysts Journal, 23(6), pp. 87-92.
52. White H., 1980. A Heteroskedasticity - Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity, Econometrica 48 (4), pp. 817–838.
53. Zhu, Y., & Zhou, G., 2009. Technical analysis: An asset allocation perspective on the use of moving averages. Journal of Financial Economics, 92(3), pp. 519-544.
2. Alexander, S. S., 1961. Price movements in speculative markets: Trends or random walks, Industrial Management Review (pre-1986), 2(2), 7.
3. Bekaert, G. and Harvey, C. R., 1995. Time‐varying world market integration. The Journal of Finance, 50(2), pp. 403-444.
4. Blume, L., Easley, D. and O'hara, M., 1994. Market statistics and technical analysis: The role of volume, The Journal of Finance, 49(1), pp. 153-181.
5. Borch, K., 1964. Price movements in the stock market, Scandinavian Actuarial Journal, 1964 (-2), pp. 41-50.
6. Bollinger, J., 1992. Using Bollinger Bands, Stocks and Commodities, 10(2), pp. 47-51.
7. Brock, W., Lakonishok, J. and LeBaron, B., 1992. Simple technical trading rules and the stochastic properties of stock returns, Journal of Finance, pp. 1731-1764.
8. Brorsen, B. W. and Irwin, S. H., 1987. Futures funds and price volatility, Review of Futures Markets, 6(2), pp. 118-135.
9. Brown, D. P. and Jennings, R. H., 1989. On technical analysis, Review of Financial Studies, 2(4), pp. 527-551.
10. Chavarnakul, T. and Enke, D., 2008. Intelligent technical analysis based equivolume charting for stock trading using neural networks, Expert Systems with Applications, 34(2), pp. 1004-1017.
11. Chowdhury, A. R., 1994. Stock market interdependencies: evidence from the Asian NIEs, Journal of Macroeconomics, 16(4), pp. 629-651.
12. Cootner, P. H., 1962. Stock prices: Ramdom vs. systematic changes, Industrial Management Review, 3(2), 24.
13. Cumby, R. E. and Modest, D. M., 1987. Testing for market timing ability: a framework for forecast evaluation, Journal of Financial Economics, 19(1), pp. 169-189.
14. Dickey, D. A., Fuller, W. A., 1979. Estimators for autoregressive time series with a unit root, Journal of the American Statistical Association 74, pp. 427-431.
15. Donchian, R. D., 1960. Commodities: High finance in copper, Financial Analysts Journal, 16(6), pp. 133-142.
16. Dumitriu, R. and Stefanescu, R., 2015. Volatility Transmission from S&P 500 to the Bucharest Stock Exchange Indexes, Vanguard Scientific Instruments in Management, Volume 1 (10), Sofia.
17. Dungey, M. and Martin, V. L., 2007. Unravelling financial market linkages during crises, Journal of Applied Econometrics, 22(1), pp. 89-119.
18. Fama, E. F. and Blume, M. E., 1966. Filter rules and stock-market trading, Journal of business, pp. 226-241.
19. Fama, E. F., 1970. Efficient capital markets: A review of theory and empirical work, The Journal of Finance, 25(2), pp. 383-417.
20. Fama, E. F., 1995. Random walks in stock market prices, Financial Analysts Journal, 51(1), pp. 75-80.
21. Froot, K. A., Scharfstein, D. S. and Stein, J. C., 1990. Herd on the street: Informational inefficiencies in a market with short-term speculation, NBER Working Paper No. 3250.
22. Gencay, R., 1998. The predictability of security returns with simple technical trading rules, Journal of Empirical Finance, 5(4), pp. 347-359.
23. Gunasekarage, A. and Power, D. M., 2001. The profitability of moving average trading rules in South Asian stock markets, Emerging Markets Review, 2(1), pp. 17-33.
24. Hsu, P. H. and Kuan, C. M., 2004. Re-Examining the Profitability of Technical Analysis with White’s Reality Check, Analysis of High-Frequency Financial Data and Market Microstructure.
25. Irwin, S. H. and Uhrig, J. W., 1984. Do technical analysts have holes in their shoes?, Review of Research in Futures Markets, 3(3), pp. 264-277.
26. Jensen, M. C., & Benington, G. A., 1970. Random walks and technical theories: Some additional evidence, The Journal of Finance, 25(2), pp. 469-482.
27. Kidd, W. V., & Brorsen, B. W., 2004. Why have the returns to technical analysis decreased?, Journal of Economics and Business, 56(3), pp. 159-176.
28. Knez, P. J., & Ready, M. J., 1996. Estimating the profits from trading strategies, Review of Financial Studies, 9(4), pp. 1121-1163.
29. Leigh, W., Modani, N., Purvis, R. and Roberts, T., 2002. Stock market trading rule discovery using technical charting heuristics, Expert Systems with Applications, 23(2), pp. 155-159.
30. Lento, C., Gradojevic, N. and Wright, C. S., 2007. Investment information content in Bollinger Bands?, Applied Financial Economics Letters, 3(4), pp. 263-267.
31. Leung, J. M. J. and Chong, T. T. L., 2003. An empirical comparison of moving average envelopes and Bollinger Bands, Applied Economics Letters, 10(6), pp. 339-341.
32. Lo, A. W., Mamaysky, H. and Wang, J., 2000. Foundations of technical analysis: Computational algorithms, statistical inference, and empirical implementation, NBER Working Paper No. 7613
33. Lo, A. W. and MacKinlay, A. C., 1999. A non-random walk down Wall Street, Princeton University Press, New Jersey.
34. Loh, E., 2004. Technical Trading Rules and Market Efficiency: Evidence from the Australian Stock Exchange 1980-2002, Economics. Business School, University of Western Australia.
35. Maillet, B. and Michel, T., 2000. Further insights on the puzzle of technical analysis profitability, The European Journal of Finance, 6(2), pp. 196-224.
36. Marshall, B. R., Cahan, R. H. and Cahan, J. M., 2008. Does intraday technical analysis in the US equity market have value?, Journal of Empirical Finance, 15(2), pp. 199-210.
37. McLean, R. D. and Pontiff, J., 2015. Does academic research destroy stock return predictability?, Journal of Finance (Forthcoming).
38. Metghalchi, M., Chang, Y. H. and Marcucci, J., 2008. Is the Swedish stock market efficient? Evidence from some simple trading rules, International Review of Financial Analysis, 17(3), pp. 475-490.
39. Murphy, J. J., 1999. Technical Analysis of the Financial Markets, New York Institute of Finance.
40. Neftci, S. N. and Policano, A. J., 1984. Can chartists outperform the market? market efficiency tests for “technical analysis”, Journal of Futures Markets, 4(4), pp. 465-478.
41. Newey, W. K. and West, K. D., 1986. A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix, Econometrica 55 (3), pp. 703-708.
42. Parisi, F. and Vasquez, A., 2000. Simple technical trading rules of stock returns: evidence from 1987 to 1998 in Chile. Emerging Markets Review, 1(2), pp. 152-164.
43. Park, C. H. and Irwin, S. H., 2004. The profitability of technical analysis: A review, AgMAS Project Research Report No. 2004-04.
44. Park, J. S. and Heaton, C., 2014. Technical trading rules in Australian financial markets, International Journal of Economics and Finance, 6(10).
45. Schulmeister, S., 2008. Components of the profitability of technical currency trading, Applied Financial Economics, 18(11), pp. 917-930.
46. Sharma, A. and Seth, N., 2012. Literature review of stock market integration: a global perspective, Qualitative Research in Financial Markets, 4(1), pp. 84-122.
47. Shefrin, H., 2008. A behavioral approach to asset pricing. Academic Press.
48. Stefanescu, R. and Dumitriu, R., 2013. Short-Term Influence of the Oil Price on Stock Prices from the Bucharest Stock Exchange, Proceedings of the 15th International Conference of Scientific Paper AFASES 2013, Brasov.
49. Stefanescu, R. and Dumitriu, R., 2015. Impact of the Shocks from NYSE on the Romanian Capital Markets, Risk in the Contemporary Economy, Proceedings Conference, pp. 371-376.
50. Treynor, J. L. and Ferguson, R., 1985. In defense of technical analysis, The Journal of Finance, 40(3), pp. 757-773.
51. Van Horne, J. C. and Parker, G. G., 1967. The random-walk theory: an empirical test, Financial Analysts Journal, 23(6), pp. 87-92.
52. White H., 1980. A Heteroskedasticity - Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity, Econometrica 48 (4), pp. 817–838.
53. Zhu, Y., & Zhou, G., 2009. Technical analysis: An asset allocation perspective on the use of moving averages. Journal of Financial Economics, 92(3), pp. 519-544.
Published
2017-08-16
How to Cite
Stefanescu, R., & Dumitriu, R. (2017). BUY AND SELL SIGNALS ON BUCHAREST STOCK EXCHANGE. Vanguard Scientific Instruments in Management, 11(2). Retrieved from https://vsim-journal.info/index.php?journal=vsim&page=article&op=view&path[]=100
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