Can retail investors beat the market by using technical trading rules? Evidence from the Nordic countries
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Journal Title
Journal ISSN
Volume Title
School of Business |
Master's thesis
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Author
Date
2021
Department
Major/Subject
Mcode
Degree programme
Finance
Language
en
Pages
55 + 9
Series
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.Description
Thesis advisor
Puttonen, VesaKeywords
technical analysis, technical trading rules, moving average, trading range break out, efficient market hypothesis, random walk theory, bootstrap simulation
