Abstract
Chong and Ng (2008) find that the Moving Average Convergence–Divergence (MACD) and Relative Strength Index (RSI) rules can generate excess return in the London Stock Exchange. This paper revisits the performance of the two trading rules in the stock markets of five other OECD countries. It is found that the MACD(12,26,0) and RSI(21,50) rules consistently generate significant abnormal returns in the Milan Comit General and the S&P/TSX Composite Index. In addition, the RSI(14,30/70) rule is also profitable in the Dow Jones Industrials Index. The results shed some light on investors’ belief in these two technical indicators in different developed markets.
Highlights
Technical analysis has been widely applied in financial markets for decades
The discipline of finance has been dominated by the Efficient Market Hypothesis (EMH) for four decades since the pioneering work of Fama [25]
If technical analysis can yield abnormal returns, it implies that the EMH and its underlying assumptions fail to hold
Summary
Technical analysis has been widely applied in financial markets for decades. It examines how an investor may profit from the behavior observed in financial markets. The two rules are still widely used as trading indicators in the market [16,17] Despite their popularity and widespread use among traders and practitioners, they have been much neglected in the academic literature [18]1. The current study extends that spirit of Chong and Ng [10] to investigate if such rules can generally generate excess returns for more markets other than the specific case of the London Stock Exchange. To this end, stock markets of five OECD countries are considered.
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