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Data Snooping on Technical Analysis: Evidence from the Taiwan Stock Market

Author

Listed:
  • Cheng-Wei Chen

    (Department of Agricultural Economics, National Taiwan University, No. 1, Sec. 4, Roosevelt Road, Taipei, 10617 Taiwan, R.O.C)

  • Chin-Sheng Huang

    (Department of Finance, National Yunlin University of Science and Technology, No. 123, Sec. 3, University Road, Douliou, Yunlin 64002, Taiwan, R.O.C.)

  • Hung-Wei Lai

    (Finance Division, Graduate School of Management, National Yunlin University of Science and Technology, No. 123, Sec. 3, University Road, Douliou, Yunlin 64002, Taiwan, R.O.C.)

Abstract

The main purpose of this paper is to investigate the validity and predictability of technical analysis in the Taiwan stock market. Bootstrapped tests of White (2000) and of Hansen (2005) are employed to ascertain whether there exists a superior trading rule among two broadly used sets of technical analysis. One coming from Brocket al.(1992) and the other from Sullivanet al.(1999). Moreover, this study brings together powerful bootstrapped tests along with two institutional adjustments to ascertain the efficacy of technical analysis: (1) non-synchronous trading and (2) transaction costs. The empirical results indicate that this triad-data snooping, non-synchronous trading and transaction costs, has a great impact on the performance of technical analysis. In fact, the Taiwan stock market stands for market efficiency, and economical profits cannot be rendered from technical analysis in this market.

Suggested Citation

  • Cheng-Wei Chen & Chin-Sheng Huang & Hung-Wei Lai, 2011. "Data Snooping on Technical Analysis: Evidence from the Taiwan Stock Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 14(02), pages 195-212.
    • Handle: RePEc:wsi:rpbfmp:v:14:y:2011:i:02:n:s0219091511002238
    DOI: 10.1142/S0219091511002238
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    Citations

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    Cited by:

    1. Salma Khand & Vivake Anand & Mohammad Nadeem Qureshi, 2020. "The Predictability and Profitability of Simple Moving Averages and Trading Range Breakout Rules in the Pakistan Stock Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 23(01), pages 1-38, March.
    2. Massoud Metghalchi & Linda A. Hayes & Farhang Niroomand, 2019. "A technical approach to equity investing in emerging markets," Review of Financial Economics, John Wiley & Sons, vol. 37(3), pages 389-403, July.
    3. Flavio Ivo Riedlinger & João Nicolau, 2020. "The Profitability in the FTSE 100 Index: A New Markov Chain Approach," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 27(1), pages 61-81, March.
    4. Metghalchi, Massoud & Chen, Chien-Ping & Hayes, Linda A., 2015. "History of share prices and market efficiency of the Madrid general stock index," International Review of Financial Analysis, Elsevier, vol. 40(C), pages 178-184.
    5. María O González & Frank Skinner & Samuel Agyei-Ampomah, 2013. "Term structure information and bond strategies," Review of Quantitative Finance and Accounting, Springer, vol. 41(1), pages 53-74, July.
    6. Patrick Bielstein & Matthias X. Hanauer, 2019. "Mean-variance optimization using forward-looking return estimates," Review of Quantitative Finance and Accounting, Springer, vol. 52(3), pages 815-840, April.

    More about this item

    Keywords

    Technical analysis; bootstrapped test; data-snooping; stock market;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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