Abstract
Using popular technical trading rule of moving averages, this study documents the profitability of technical analysis for equal weighted random portfolios from Australian Securities Exchange (ASX) and New Zealand Exchange (NZX) equity markets. The findings confirm prior evidence on the profitability of technical analysis for portfolio trading in relatively illiquid financial markets that are part of small open economies. This study contributes to the technical analysis literature regarding the number of stocks in a portfolio (hereafter “portfolio size”) that a trader must hold to outperform a passive benchmark strategy. Precisely, the findings suggest that an investor can consistently outperform buy and hold strategy return by applying MA timing strategy to a portfolio that contains 80 or more random stocks. In addition, the study identifies market volatility and short-term market trend as major determinants of moving average strategy’s success.
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