Abstract
Tian, Wan and Guo (2002) explored the predictability and profitability of technical trading rules in markets with different efficiency levels; namely, the U.S. and China. In the case of the U.S. they found rules to have no predictability after 1975, whereas their results give support to technical trading rules having both predictability and profitability for the Chinese markets across the 1990's. The purpose of this paper is to extend the analysis of Tian et al. in two ways. First, to see if the conclusions extend to other markets – namely, the U.K., Hong Kong and Japan. Second, in the case of China, to examine whether the predictability and profitability of technical trading rules changed across the 1990's. On the basis of daily data Tian et al's results for the U.S. market are supported by the results for a number of the main developed markets where the technical trading rules had predictive ability during the 1970's that disappeared by the 1990's. Furthermore, the results suggest that while technical trading rules had short term predictive ability and profitability in the Chinese stock markets during the 1990's, this lessened as the decade progressed.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Baillie, R. T. (1989) Econometric tests of rationality and market efficiency, Econometric Rev. 8, 151–186.
Bessembinder, H. and Chan, K. (1995) The profitability of technical trading rules in Asian stock markets, Pacific-Basin Finance J. 3, 257–284.
Brock, W., Lakonish, J. and LeBaron, B. (1992) Simple technical rules and the stochastic properties of stock returns, J. Finance 47, 1731–1764.
Campbell, J. Y., Lo, A. W. and MacKinley, A. C. (1997) The Econometrics of Financial markets, Princeton University Press, Princeton.
Claessens, S., Dasgupta, S. and Glen, J. (1995) Return behaviour in emerging stock markets, The World Bank Econ. Rev. 9, 131–151.
Fama, E. F. (1970) Efficient capital markets I: Review of theory and empirical work, J. Finance 11, 318–417.
Fama, E. F. (1991) Efficient capital markets: II, J. Finance 46, 1575–1617.
Fama, E. F. (1998) Market efficiency, long-term returns, and behavioural finance, J. Finan. Econ. 49, 283–306.
Fernandez-Rodriguez, F., Gonzales-Martel, C. and Sosvilla-Rivero, S. (2000) On the profitability of technical trading rules based on artificial neural networks: Evidence from the Madrid stock market, Econ. Lett. 69, 89–94.
Gencay, R. (1998a) Optimisation of technical trading strategies and the profitability in security markets, Econ. Lett. 59, 249–254.
Gencay, R. (1998b) The predictability of security returns with simple technical trading rules, J. Empirical Finance 5, 347–359.
Gencay, R. (1999) Linear, non-linear and essential foreign exchange rate prediction with some simple technical trading rules, J. Int. Econ. 47, 91–107.
Gencay, R. and Stengos, T. (1997) Technical trading rules and the size of the risk premium in security returns, Stud. Nonlinear Dynam. Econometrics 2, 23–24.
Gencay, R. and Stengos, T. (1998) Moving average rules, volume and predictability of security returns with feed-forward networks, J. Forecasting 17, 401–414.
Hollander, M. and Wolfe, D. A. (1973) Non-parametric Statistical Methods, John Wiley, New York.
Hudson, R., Dempsey, M. and 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, J. Banking Finance 20, 1121–1132.
LeBaron, B. (1998) Technical trading rules and regime shifts in foreign exchange. In E. Acar and S. Satchell (eds.), Advanced Trading Rules, Butterworth-Heinemann, London, pp. 5–40.
LeBaron, B. (1999) Technical trading rule profitability and foreign exchange intervention, J. Int. Econ. 49, 125–143.
Pesaran, M. H. and Timmerman, A. (1995) Predictability of stock returns: Robustness andeconomic significance, J. Finance 50, 1201–1228.
Scholes, M. and Williams, J. (1977) Estimating betas from nonsynchronous data, J. Financ. Econ. 5, 309–327.
Shi, Y. D., Xie, C. B., Fan, N., Liu, Y., Wu, Z., Jiang, X. F., Ji, H. T., Dong, C., Huang, L., and Wang, K. (2002) Empirical study on the effects of trading costs in China security market, SSER Res, Shanghai Stock Exch. 3, 269–324.
Sun, P. Y., Kong, A. G., Shi, D. H., Guo, J. B., Huang, J. B., and Hu, W. (2002) Trading mechanism and market quality, SSER Res., Shanghai Stock Exch. 3, 195–247.
Tian, G.G., Wan, G.H., and Guo, M. (2002) Market efficiency and the returns to simple technical trading rules: New evidence from U.S. equity markets and Chinese equity markets, Asia-Pacific Financ. Markets 9, 241–258.
Author information
Authors and Affiliations
Corresponding author
Additional information
JEL Classification: G14, G15
Rights and permissions
About this article
Cite this article
Cai, B.M., Cai, C.X. & Keasey, K. Market Efficiency and Returns to Simple Technical Trading Rules: Further Evidence from U.S., U.K., Asian and Chinese Stock Markets. Asia-Pacific Finan Markets 12, 45–60 (2005). https://doi.org/10.1007/s10690-006-9012-y
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10690-006-9012-y