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Moving Average Convergence-Divergence as a tool for deciding on investments in the stock market

Author

Listed:
  • Rodrigo Silva Vidotto
  • Antônio Luiz Tonissi Migliato
  • Antonio Carlos Zambon

Abstract

The increase in the number of investors at Bovespa since 2000 is due to stabilized inflation and falling interest rates. The use of tools that assist investors in selling and buying stocks is very important in a competitive and risky market. The technical analysis of stocks is used to search for trends in the movements of share prices and therefore indicate a suitable moment to buy or sell stocks. Among these technical indicators is the Moving Average Convergence-Divergence [MACD], which uses the concept of moving average in its equation and is considered by financial analysts as a simple tool to operate and analyze. This article aims to assess the effectiveness of the use of the MACD to indicate the moment to purchase and sell stocks in five companies - selected at random - a total of ninety companies in the Bovespa New Market and analyze the profitability gained during 2006, taking as a reference the valorization of the Ibovespa exchange in that year. The results show that the cumulative average return of the five companies was of 26.7% against a cumulative average return of 0.90% for Ibovespa.

Suggested Citation

  • Rodrigo Silva Vidotto & Antônio Luiz Tonissi Migliato & Antonio Carlos Zambon, 2009. "Moving Average Convergence-Divergence as a tool for deciding on investments in the stock market," RAC - Revista de Administração Contemporânea (Journal of Contemporary Administration), ANPAD - Associação Nacional de Pós-Graduação e Pesquisa em Administração, vol. 13(2), pages 291-309.
    • Handle: RePEc:abg:anprac:v:13:y:2009:i:2:677
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