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An alternative test for weak form efficiency based on technical analysis

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  • Elaine Y. L. Loh

Abstract

This study proposes a test for weak form efficiency based on the practitioner's approach to technical analysis. Previous studies typically make inferences on weak form efficiency based on the empirical results of testing only one class of technical rules-trend indicators. The practitioner's approach, on the other hand, typically involves the simultaneous use of trend indicators and other confirming indicators because trend indicators do not sufficiently capture the information content in past prices. By combining trend indicators with confirming indicators that are also based on the detection of trends in past prices, it is possible to construct a superior technical trading strategy that captures a more comprehensive aspect of predictability in past prices. Applying the technical trading rules to data on five Asian-Pacific stock markets, the evidence suggests that a test for weak form efficiency based solely on trend indicators is noisy and that the alternative test proposed in this study is significantly more effective in capturing the information content in past prices. An examination of weak form efficiency based on this alternative test suggests that weak form efficiency is determined by factors other than technological progress.

Suggested Citation

  • Elaine Y. L. Loh, 2007. "An alternative test for weak form efficiency based on technical analysis," Applied Financial Economics, Taylor & Francis Journals, vol. 17(12), pages 1003-1012.
    • Handle: RePEc:taf:apfiec:v:17:y:2007:i:12:p:1003-1012
    DOI: 10.1080/09603100600749352
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    3. Ansari Saleh Ahmar, 2017. "Sutte Indicator: A Technical Indicator in Stock Market," International Journal of Economics and Financial Issues, Econjournals, vol. 7(2), pages 223-226.
    4. Panha Heng & Scott J. Niblock, 2014. "Trading with Tigers: A Technical Analysis of Southeast Asian Stock Index Futures," International Economic Journal, Taylor & Francis Journals, vol. 28(4), pages 679-692, December.
    5. Yen-Sen Ni & Jen-Tsai Lee & Yi-Ching Liao, 2013. "Do variable length moving average trading rules matter during a financial crisis period?," Applied Economics Letters, Taylor & Francis Journals, vol. 20(2), pages 135-141, February.
    6. Yi-Jang Yu, 2015. "Short-term Technical Predictive Ability in the Taipei Stock Market," Research in World Economy, Research in World Economy, Sciedu Press, vol. 6(2), pages 50-61, June.
    7. Ni, Yensen & Liao, Yi-Ching & Huang, Paoyu, 2015. "MA trading rules, herding behaviors, and stock market overreaction," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 253-265.
    8. Mohammed Bouasabah & Oshamah Ibrahim Khalaf, 2023. "A Technical Indicator for a Short-term Trading Decision in the NASDAQ Market," Advances in Decision Sciences, Asia University, Taiwan, vol. 27(3), pages 1-13, September.

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