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Size, trading volume, and the profitability of technical trading

Author

Listed:
  • Yung-Ho Chang
  • Chia-Ching Jong
  • Sin-Chong Wang

Abstract

Purpose - The purpose of this paper is to evaluate the profitability of technical trading relative to buy-and-hold (BH) strategy at firm level, controlling for firm size and trading volume. Design/methodology/approach - This paper applies variable-length moving averages (VMAs) thoroughly to each and every stock listed on Taiwan Stock Exchange (TWSE) and computes the excess returns of technical trading relative to BH strategy. The samples are further grouped by firm size and trading volume. Furthermore, possible data snooping bias is investigated by employing Hansen’s (2005) Superior Predictive Ability tests. Findings - The result shows that VMAs outperform the BH strategy. The profitability of VMAs, remarkably, is positively associated with size and trading volume. After correcting for data snooping bias, VMAs with longer moving averages outperform VMAs with shorter moving averages. The evidence suggests that size and volume information is accountable for trend projection. Originality/value - Unlike past studies simply applying technical trading rules to market indices, portfolios, or selected stocks, this paper evaluates the profitability of technical trading by applying VMAs comprehensively to each and every individual stock listed on TWSE controlling for the effect of firm size and trading volume, providing more practical insights for trading individual stocks.

Suggested Citation

  • Yung-Ho Chang & Chia-Ching Jong & Sin-Chong Wang, 2017. "Size, trading volume, and the profitability of technical trading," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 13(4), pages 475-494, August.
    • Handle: RePEc:eme:ijmfpp:ijmf-09-2016-0179
    DOI: 10.1108/IJMF-09-2016-0179
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    More about this item

    Keywords

    Trading volume; Technical trading; Firm size; Superior predictive ability; G11; G12;
    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

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