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Fundamental Versus Technical Analysis

In: Market Timing and Moving Averages

Author

Listed:
  • Paskalis Glabadanidis

Abstract

Technical analysis involves the use of past and current market price, trading volume, and, potentially, other publicly available information to try and predict future market prices. It is highly popular in practice with plentiful financial trading advice that is based largely, if not exclusively, on technical indicators. In a perhaps belated testament to this fact consider the following quote from the New York Times issue dated March 11, 1988: “Starting today the New York Times will publish a comprehensive three-column market chart every Saturday... History has shown that when the S&’P index rises decisively above its (moving) average the market is likely to continue on an upward trend. When it is below the average that is a bearish signal. “ More formally, Brock, Lakonishok and LeBaron (1992) find evidence that some technical indicators do have a significant predictive ability. Blume, Easley and O’Hara (1994) present a theoretical framework using trading volume and price data leading to technical analysis being a part of a trader’s learning process. A more thorough study of a large set of technical indicators by Lo, Mamaysky and Wang (2000) also found some predictive ability especially when moving averages (MAs) are concerned. Zhu and Zhou (2009) provide a solid theoretical reason why technical indicators could be a potentially useful state variable in an environment where investors need to learn over time the fundamental value of the risky asset they invest in.

Suggested Citation

  • Paskalis Glabadanidis, 2015. "Fundamental Versus Technical Analysis," Palgrave Macmillan Books, in: Market Timing and Moving Averages, chapter 0, pages 1-3, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-35983-4_1
    DOI: 10.1057/9781137359834_1
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