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Market Efficiency and Technical Analysis in Romania

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  • Dan Gabriel Anghel

Abstract

In this paper we make a detail evaluation of stock market efficiency in Romania. First, we employ 686,243 trading models derived from 44 technical analysis indicators and determine that significant inefficiencies exist for stock prices in this country. The time varying nature of these points out that market efficiency is not improving over time, but instead fluctuates in the way consistent to the Adaptive Market Hypothesis. We show that investor success does not depend on the target investment asset, slightly depends on specific prediction models and heavily depend on the size of the implemented rule universe. Next, we focus on finding out what are the determining factors for market efficiency. Contrary to what one might expect, we find that market liquidity has an almost insignificant impact on efficiency. The main determining factor for market efficiency in Romania is price momentum, and argues that the detected anomalies are due to investor behavioral biases.

Suggested Citation

  • Dan Gabriel Anghel, 2015. "Market Efficiency and Technical Analysis in Romania," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 6(2), pages 164-177, April.
  • Handle: RePEc:jfr:ijfr11:v:6:y:2015:i:2:p:164-177
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    References listed on IDEAS

    as
    1. Victor Dragota & Dragos Stefan Oprea, 2014. "Informational Efficiency Tests on the Romanian Stock Market: A Review of the Literature," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 6(1), pages 015-028, June.
    2. Dan Anghel, 2013. "How Reliable is the Moving Average Crossover Rule for an Investor on the Romanian Stock Market?," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 5(2), pages 089-115, December.
    3. Dragota, Victor & Stoian, Andreea & Pele, Daniel Traian & Mitrica, Eugen & Bensafta, Malik, 2009. "The Development of the Romanian Capital Market: Evidences on Information Efficiency," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 6(2), pages 147-160, June.
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    Cited by:

    1. repec:eee:phsmap:v:486:y:2017:i:c:p:397-407 is not listed on IDEAS
    2. H. -L. Shi & W. -X. Zhou, 2017. "Wax and wane of the cross-sectional momentum and contrarian effects: Evidence from the Chinese stock markets," Papers 1707.05552, arXiv.org.

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