Intertemporal profitability and the stability of technical analysis: Evidences from the Hong Kong stock exchange

Ming Yan William Cheung, Keith S.K. Lam, Hang Fai Yeung

Research output: Contribution to journalArticle

11 Citations (Scopus)

Abstract

This study investigates the impact of market integration on the profitability of two simple and popular technical trading rules, the Simple Moving Average (SMA) and the Trading Range Break (TRB) in Hong Kong. Using data from 1972 to 2006, we find that the SMA (1, 50) consistently outperforms the market before the integration of stock exchanges in 1986. Under the (1, 50) rule, a variable length moving average performs better than the fixed length moving average rule by 2.5 to 5% (annual) before transaction costs because it includes the information of the first 9 days into investors' decision. The results are robust to the out of sample tests for the validity of the profitability of the trading rules. The returns of the trading range break rules are insignificant over the 35-year span. Our results support the conjecture that stock market integration may lead to better information efficiency. The findings of significant pre-1986 profits and insignificant post-1986 profits, contradict previous findings that returns are predictable in Hong Kong, suggesting that the Hong Kong stock market may be weak-form efficient after 1986. Overall, our results suggest that technical analysis matters for asset pricing.

Original languageEnglish
Pages (from-to)1945-1963
Number of pages19
JournalApplied Economics
Volume43
Issue number15
DOIs
Publication statusPublished - 2011 Jun
Externally publishedYes

Fingerprint

Hong Kong
Profitability
Stock exchange
Technical analysis
Moving average
Profit
Asset pricing
Trading rules
Hong Kong stock market
Transaction costs
Stock market integration
Technical trading rules
Information efficiency
Market integration
Investors

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

Intertemporal profitability and the stability of technical analysis : Evidences from the Hong Kong stock exchange. / Cheung, Ming Yan William; Lam, Keith S.K.; Yeung, Hang Fai.

In: Applied Economics, Vol. 43, No. 15, 06.2011, p. 1945-1963.

Research output: Contribution to journalArticle

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