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The role of information uncertainty in moving-average technical analysis: A study of individual stock-option issuance in Taiwan

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  • Chen, Chien-Hua
  • Su, Xuan-Qi
  • Lin, Jun-Biao

Abstract

Using a sample of Taiwan stock market, this paper investigates the role of information uncertainty in the profitability of technical analysis by applying a moving average (MA) strategy to portfolios grouped according to whether firms issue stock options. Results indicate that, even though considering transaction costs, the MA strategy significantly outperforms the buy-and-hold strategy on the portfolio without option issuance, but not on the portfolio with option issuance. The results support the hypothesis that stocks that do not issue options exhibit greater information uncertainty, and thus greater price continuation, which in turn implies a superior performance of the MA strategy.

Suggested Citation

  • Chen, Chien-Hua & Su, Xuan-Qi & Lin, Jun-Biao, 2016. "The role of information uncertainty in moving-average technical analysis: A study of individual stock-option issuance in Taiwan," Finance Research Letters, Elsevier, vol. 18(C), pages 263-272.
    • Handle: RePEc:eee:finlet:v:18:y:2016:i:c:p:263-272
    DOI: 10.1016/j.frl.2016.04.026
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    2. Leandro Maciel, 2020. "Technical analysis based on high and low stock prices forecasts: evidence for Brazil using a fractionally cointegrated VAR model," Empirical Economics, Springer, vol. 58(4), pages 1513-1540, April.
    3. Erhard Reschenhofer & Manveer Kaur Mangat & Christian Zwatz & Sándor Guzmics, 2020. "Evaluation of current research on stock return predictability," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 39(2), pages 334-351, March.

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    More about this item

    Keywords

    Information uncertainty; Technical analysis; Moving average; Stock option; Price continuation;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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