Abstract
Objective: To examine the performance of exponential moving average, moving average convergence and divergence, relative strength index and momentum rules in Pakistan stock market. Methods/Statistical Analysis: Exponential moving average, moving average convergence and divergence, relative strength index and momentum rules are applied on the daily closing prices of the KSE -100 index of Pakistan stock market covering the period 1st January 1997 to 31st December 2013. The predictability and profitability of these rules in Pakistan stock market was assessed by using simple t-test and “double or out strategy” respectively. Findings: Whole sample period results obtained by the application of EMA, MACD, RSI and MOM rules provided empirical evidence about EMA and MOM that all the variants of these rules possessed substantial prognostic capability and were able to make earnings superior to position trading. Nonetheless in the presence of transaction costs, only (1, 50, 1) and (1, 50, 0) variants of EMA, (12, 26, 9) and (8, 17, 9) variants of MACD and both variants of MOM were found to be profitable in Pakistan stock market. The division of the whole sample data on the basis of financial crisis and non-crisis eras disclosed that the applied trading rules provided more revenues during crisis than in non-crisis periods. This study is a remarkable contribution to the current literature on Pakistan stock market as previously very little research work has been carried out on this stock market. Application/Improvements: The findings of this study are novel and are hoped to be helpful for investors in Pakistan to earn maximum revenues with minimum risk of losing their hard earned money. Keywords: Exponential Moving Average, Momentum, Moving Average Convergence and Divergence, Pakistan Stock Market, Relative Strength Index
Highlights
Technical trading rules are employed by researchers to forecast upcoming price movements based on past price data in various financial markets
Technical analysis does not involve fundamental data, it strongly opposes any form of the Efficient Market Hypothesis (EMH), which states that the future direction of stock price movements cannot be predicted on the basis of past prices information when the stock market is at least weak form efficient
The Performance of Exponential Moving Average, Moving Average Convergence-Divergence, Relative Strength Index and Momentum Trading Rules in the Pakistan Stock Market financial market is said to be efficient when all the available information about the stock is reflected by security prices11,12 supporters of EMH argue that it is impossible to generate risk-adjusted profits by applying technical trading rules on past stock prices data, unless market inefficiencies are there
Summary
Technical trading rules are employed by researchers to forecast upcoming price movements based on past price data in various financial markets. The Performance of Exponential Moving Average, Moving Average Convergence-Divergence, Relative Strength Index and Momentum Trading Rules in the Pakistan Stock Market financial market is said to be efficient when all the available information about the stock is reflected by security prices supporters of EMH argue that it is impossible to generate risk-adjusted profits by applying technical trading rules on past stock prices data, unless market inefficiencies are there. The objective of this research study is to examine the performance of EMA, MACD, RSI and MOM trading rules in Pakistan Stock market. The findings of this study are novel and an important contribution in the literature on Pakistan stock market
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
