Can retail investors beat the market by using technical trading rules? Evidence from the Nordic countries

Abstract

This thesis examines the performance of three simple technical trading rules in Nordic countries: Variable-length simple moving average (V-SMA), Fixed-length simple moving average (F-SMA), and Trading range break out (TRB). I find that technical trading rules have some predictive power. Overall, the strongest results are obtained at shorter time intervals using the V-SMA rule. Particularly the results for Iceland are strikingly strong: all the V-SMA rule tests are statistically significant. The average daily (annual) returns for conditional buy, sell and buy-sell difference are 0,093% (27%), -0,128% (-28%) and 0,221 (77%), respectively. These returns are enormous when compared to the unconditional buy-and-hold return of 0,021% (5,6%). Iceland’s break-even transaction cost percent, which would eliminate trading gains, ranges from 1,1% to 11,7%, indicating that retail investors are able to beat the market even after transaction costs. The results are confirmed using a bootstrap simulation, which indicates that the results cannot be explained by the random walk. However, the results for the other countries are more mixed.