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

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master_Vaala_Jere_2021.pdf (1.07 MB)

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School of Business | Master's thesis
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Date

2021

Department

Rahoituksen laitos

Major/Subject

Mcode

Degree programme

Finance

Language

en

Pages

55 + 9

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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.

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Thesis advisor

Puttonen, Vesa

Keywords

technical analysis, technical trading rules, moving average, trading range break out, efficient market hypothesis, random walk theory, bootstrap simulation

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https://urn.fi/URN:NBN:fi:aalto-202107047925

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[gradu] Kauppakorkeakoulu / BIZ