Testing Market Efficiency, Predictability and Profitability at Pakistan Stock Exchange Using Firm-level Data
Abstract
This study examines market efficiency in the light of the simple moving average technical trading rules on daily closing share prices of 100 companies listed on Pakistan Stock Exchange over ten years from 2006 to 2015. The results show strong support for simple moving average 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 these simple moving average rules produce abnormal returns to investors and hence nullify the weak form of efficiency on PSX.
Downloads
Article Analytics Summary
References
Almujamed, H. I., Fifield, S. G., & Power, D. M. (2018). An investigation of the weak form of the efficient markets hypothesis for the Kuwait stock exchange. Journal of EmergingMarketFinance, 17(1), 1-28. DOI: https://doi.org/10.1177/0972652717748085
Bessembinder, H., & Chan, K. (1995). The profitability of technical trading rules in the Asian stock markets. Pacific-Basin Finance Journal, 3(2-3), 257-284. DOI: https://doi.org/10.1016/0927-538X(95)00002-3
Brock, W., Lakonishok, J., & LeBaron, B. (1992). Simple technical trading rules and the stochastic properties of stock returns. The Journal of finance, 47(5), 1731-1764. DOI: https://doi.org/10.1111/j.1540-6261.1992.tb04681.x
Copeland, T. Weston, J. E. and Shastri, K., (2005), Financial Theory and Corporate Policy, 4th Edition, Pearson, Wokingham.
Fama, E.F. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. The Journal of Finance, 25, 2, 383-417. DOI: https://doi.org/10.1111/j.1540-6261.1970.tb00518.x
Fifield, S. G. M., Power, D. M. and Knipe, D. G. S., (2008), “The Performance of Moving Average Rules in Emerging Stock Markets”, Applied Financial Economics,18(19), 1515-1532. DOI: https://doi.org/10.1080/09603100701720302
Gunasekarage, A., & Power, D. M. (2001). The profitability of moving average trading rules in South Asian stock markets. Emerging Markets Review, 2(1), 17-33. DOI: https://doi.org/10.1016/S1566-0141(00)00017-0
Hudson, R., Dempsey, M., & Keasey, K. (1996). A note on the weak form efficiency of capital markets: The application of simple technical trading rules to UK stock prices-1935 to 1994. Journal of Banking and Finance, 20(6), 1121-1132. DOI: https://doi.org/10.1016/0378-4266(95)00043-7
Khan, M. A., Khan, N., Hussain, J., Shah, N. H., & Abbas, Q. (2017). Validity of Technical Analysis Indicators: A Case of KSE-100 Index. Abasyn University Journal of Social Sciences, 10(1).
Khan, M. A., Khan, N., Hussain, J., & Shah, N. H. (2016). Technical Analysis: Concept or Reality? Pakistan Business Review, 18(3), 732-751.
Mallikarjunappa, T., & Jyothi Dsouza, J. (2014). A Study of Quarterly Earnings Announcement and Stock Price Reactions. IUP Journal of Applied Finance, 20(4)
Metghalchi, M., Marcucci, J., & Chang, Y. H. (2012). Are moving average trading rules profitable? Evidence from the European stock markets. Applied Economics, 44(12), 1539-1559. DOI: https://doi.org/10.1080/00036846.2010.543084
Mitra, S. K. (2011). How rewarding is technical analysis in the Indian stock market?. Quantitative Finance, 11(2), 287-297. DOI: https://doi.org/10.1080/14697680903493581
Pring, M. J. (2002). Study Guide for Technical Analysis Explained. McGraw-Hill.
Tharavanij, P., Siraprapasiri, V., & Rajchamaha, K. (2015). Performance of technical trading rules: evidence from Southeast Asian stock markets. SpringerPlus, 4(1), 552. DOI: https://doi.org/10.1186/s40064-015-1334-7
Yu, H., Nartea, G. V., Gan, C., & Yao, L. J. (2013). Predictive ability and profitability of simple technical trading rules: Recent evidence from Southeast Asian stock markets. International Review of Economics & Finance, 25, 356-371. DOI: https://doi.org/10.1016/j.iref.2012.07.016
CSRC Publishing and JAFEE adhere to Creative Commons Attribution-Non Commercial 4.0 International License. The authors, submitting and publishing in the Journal of Accounting and Finance in Emerging Economies published by CSRC Publishing, retain the copyright of their work and give the journal right to publish their work agreeing to the licensing policy under Creative Common Attribution-Non Commercial (NC-BY-NC 4.0) International. Under this license, the published authors let others remix, tweak, and build upon their work non-commercially. Yet all the other authors using the content of CSRC Publishing are required to cite author(s), journal name and publisher in their work. CSRC Publishing and JAFEE follow an Open Access Policy for copyright and licensing.
