The Predictability and profitability of Trading Range Break-out Trading Rules: Evidence from Pakistan Stock Exchange

The efficient market hypothesis has been one of themost extensively researched topics in the academic literature for decades. An implication ofweak form of efficiency is that the technical trading rules will not produce abnormal returns. The purpose of this research is to analyze findings of application of trading range breakout test on daily closing share prices of 100 companies listed on a Pakistan Stock Exchange over ten years from 2006 to 2015,thus examining its efficiency at the weak form. The results show strong support for trading range break-out rules having both predictability and profitability for PSX. It refers that the returns from these rules are not same as investors earn from a naïve buy and hold strategy. The uses of the trading range break-out rules produce abnormal returns to investors and hence nullify the weak form of efficiency on PSX.

Trading rules and excess returns: evidence from Turkey

Purpose This paper aims to investigate popular technical trading rules (TTRs) applied to the FTSE Turkish all-cap and small-cap indexes from September 23, 2003 to August 9, 2019 to determine rules that produce net excess returns over the Buy-and-Hold strategy (B&H). Design/methodology/approach Five TTRs, namely, simple moving average, relative strength index, moving average convergence divergence, momentum, and rate of change, are applied, singly (one indicator) and in combination (two indicators) for multiple time periods. Findings For the small-cap index, some TTRs – including the famous Golden Cross, when the 50-day moving average rises above 200-day moving average – produced net annual excess returns (NAERs) over the B&H strategy, for the entire period and each sub-period, after accounting for risk and transaction costs. Results were mixed for the large-cap index. The results support Cakici and Topyan (2013). Research limitations/implications This study investigates several indicators, but future studies should examine others, especially based on volume and price. Practical implications Investors in the FTSE Turkish small-cap index may use some trading rules to earn NAERs over the B&H strategy. Originality/value This research is important because it addresses a gap in the research by examining numerous TTRs in the Turkish stock market. Studies of TTRs in Turkey are scarce.

Rolling Momentum Strategy: An Empirical Analysis

Research background: The focus of the momentum strategy, as a procyclical investment strategy, lies in the hypothesis that the winning shares of the past will most likely develop in the same direction in the near future. The same is assumed for the performance of the loser shares. The technical trading rules of relative strength according to Levy provide the basis for this approach (Levy, 1967). The momentum strategy can thus offer investors an opportunity to outperform the market. The creation of portfolios under the momentum strategy follows simple rules: On the basis of past prices, equities are selected within a formation period according to return criteria. The stocks with the highest and lowest returns on equities in the formation period are combined into winning and losing portfolios, each with the same number. The final step is the acquisition of the winning portfolio, which is held over the specified investment period, with the loser portfolio being sold short at the same time. The empirical analysis presented in this paper focuses on the success of the momentum strategy for the STOXX Europe 600 market over a formation and investment period of six months. Purpose of the article: The objective of this paper is to empirically test the above statements and assumptions. Portfolios are built up on a rolling basis over a period of six months and then observed with respect to their performance over a period from 1995 to 2000. The achieved returns are compared with a buy-and-hold strategy and empirically tested for return differences. Especially the years 2001, 2008, and 2020 as the crisis years of the dot-com bubble, the financial crisis, and the COVID-19 pandemic are focused on and discussed. Methods: The data of the period are examined for performance development in a database in the form of winner and loser portfolios. The returns are calculated as AR to a reference portfolio DAX. The returns are statistically tested for significant differences to a zero return using a t test. Findings & Value added: The results show the performance of the momentum strategy in the period from 1995 to 2000 for the stocks of the STOXX Europe 600. The strong fluctuations in the crisis years are notable. With few exceptions, the reference returns could only provide statistically non-significant results.