BOOTSTRAP TESTING OF TRADING STRATEGIES IN EMERGING BALKAN STOCK MARKETS
Technical analysis is an approach to predicting future prices based on detecting regularity patterns in prices, volume and other market indicators. It ordinarily proceeds by noting market activity in some graphical form and then deducing possible future trends from the observed historical data. This paper stands on the postulate that stock prices manifest various regularities; once these regularities are identiﬁed, technical analysts and/or market participants should be consulted about what is likely to happen next.
Jméno a příjmení autora:
Boris Radovanov, Aleksandra Marcikić
Technical trading rules, stock market indices, market efﬁciency, bootstrap, data snooping
Most lately, the attention of technical trading analysis has shifted to emerging stock markets which collectively bring a signiﬁcant alternative source of opportunities to international investors.…více
Most lately, the attention of technical trading analysis has shifted to emerging stock markets which collectively bring a signiﬁcant alternative source of opportunities to international investors. Accordingly, the aim of this paper is to investigate the effectiveness of four technical trading rules (moving average, ﬁlter, trading range breakout and channel breakout rule) in six stock market indices of the Balkan States. Also, the paper is providing resume evidence on the predictive power of four mentioned trading rules. We apply the Reality Check and the Superior Predictive Ability test using bootstrap methodology to evaluate the relative performance of those rules. Furthermore, presented tests provide an answer to data snooping problems, which is essential to obtain unbiased outcomes. The original time series is resampled with random draw in two ways: a parametric residual-based method from the AR(1)-GARCH(1,1) model, and a nonparametric, the moving block bootstrap. After including data snooping biases, this study ﬁnds that the null hypothesis that trading rules do not outperform the benchmark can be rejected at the 5 percent signiﬁcance level for ﬁve separate stock indices, excluding the MBI10 index. Similarly, such results show the rejection of the weak-form market efﬁciency hypothesis in case of mentioned stock markets. Applied technical trading rule algorithms in all six stock market indices mainly generate more losing trades then wining trades. Finally, transaction costs have relatively small effect on the overall performance of selected technical trading rules in case of indices BELEX15, CROBEX, SBITOP and MONEX20, but with some changes in choice of the best technical trading rule considering the effects of trading frequencies.