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Technical analysis in the Madrid stock exchange

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  • Fernando Fernández-Rodríguez
  • Simón Sosvilla-Rivero
  • Julián Andrada-Félix

Abstract

In this paper we assesss whether some simple forms of technical analysis can predict stock price movements in the Madrid Stock Exchange. To that end, we use daily data for General Index of the Madrid Stock Exchange, covering the thirty-one-year period from January 1966-October 1997. Our results provide strong support for profitability of these technical trading rules. By making use of bootstrap techniques, we show that returns obtained from these trading rules are not consistent with several null models frequently used in finance, such as AR(1). GARCH and GARCH-M.

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Paper provided by FEDEA in its series Working Papers with number 99-05.

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Handle: RePEc:fda:fdaddt:99-05

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Keywords: Stock market; Technical trading rules;

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  1. Brock, W. & Lakonishok, J. & Lebaron, B., 1991. "Simple Technical Trading Rules And The Stochastic Properties Of Stock Returns," Working papers, Wisconsin Madison - Social Systems 90-22, Wisconsin Madison - Social Systems.
  2. Hsieh, David A, 1991. " Chaos and Nonlinear Dynamics: Application to Financial Markets," Journal of Finance, American Finance Association, American Finance Association, vol. 46(5), pages 1839-77, December.
  3. Fernando Fernandez-Rodriguez & Simon Sosvilla-Rivero & Maria Dolores Garcia-Artiles, 1997. "Using nearest neighbour predictors to forecast the Spanish stock market," Investigaciones Economicas, Fundación SEPI, Fundación SEPI, vol. 21(1), pages 75-91, January.
  4. Neftci, Salih N, 1991. "Naive Trading Rules in Financial Markets and Wiener-Kolmogorov Prediction Theory: A Study of "Technical Analysis."," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 64(4), pages 549-71, October.
  5. Ignacio Olmeda & Joaquin Pérez, 1995. "Non-linear dynamics and chaos in the Spanish stock market," Investigaciones Economicas, Fundación SEPI, Fundación SEPI, vol. 19(2), pages 217-248, May.
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Cited by:
  1. BEN OMRANE, Walid & VAN OPPEN, Hervé, 2004. "The predictive success and profitability of chart patterns in the Euro/Dollar foreign exchange market," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2004035, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Fernando Fernández-Rodríguez & Christian González-Martel & Simón Sosvilla-Rivero, . "Optimisation of Technical Rules by Genetic Algorithms: Evidence from the Madrid Stock Market," Working Papers, FEDEA 2001-14, FEDEA.

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