Technical Analysis in Financial Markets

Hommes, Cars; Griffioen, Gerwin A. W.

doi:10.2139/ssrn.566882

Cited by 20 publications

(16 citation statements)

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“…The profit generating potential of trading rules has also been scrutinised within the genetic programming framework by Neely et al (1997) and by the use of artificial neural networks by Gencay (1998) andFernandez-Rodriguez et al (2000). Griffioen (2003) contains extensive statistical testing of the profitability of technical trading rules, after correcting for transaction costs and data snooping, of many stock market indices including the Dow Jones index.…”

Section: Introductionmentioning

confidence: 99%

A Dynamic Analysis of Moving Average Rules

Chiarella

Hommes

2005

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. ABSTRACT. The use of various moving average (MA) rules remains popular with financial market practitioners. These rules have recently become the focus of a number empirical studies, but there have been very few studies of financial market models where some agents employ technical trading rules of the type used in practice. In this paper we propose a dynamic financial market model in which demand for traded assets has both a fundamentalist and a chartist component. Terms of use: Documents inThe chartist demand is governed by the difference between current price and a (long-run) MA.Both types of traders are boundedly rational in the sense that, based on a fitness measure such as realized capital gains, traders switch from a strategy with low fitness to the one with high fitness.We characterize the stability and bifurcation properties of the underlying deterministic model via the reaction coefficient of the fundamentalists, the extrapolation rate of the chartists and the lag length used for the MA. By increasing the intensity of choice to switching strategies, we then examine various rational routes to randomness for different MA rules. The price dynamics of the moving average rule are also examined and one of our main findings is that an increase of the window length of the MA rule can destabilize an otherwise stable system, leading to more complicated, even chaotic behaviour. The analysis of the corresponding stochastic model is able to explain various market price phenomena, including temporary bubbles, sudden market crashes, price resistance and price switching between different levels.JEL classifications: D83, D84, E21, E32, C60.

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Section: Introductionmentioning

confidence: 99%

A Dynamic Analysis of Moving Average Rules

Chiarella

Hommes

2005

SSRN Journal

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“…A good example is technical analysis with the Federal Reserve System model which is extensively criticised by theorists for their laws but used by practitioners nevertheless. The sheer beliefs and usage of such concepts substantially inluence the market Financial Management from an Emerging Market Perspectiveeven without sound academic background [35]. Furthermore, restrictions like short selling, set by a higher body or lock-in periods for stock options, may skew and alter the economic normalisation processes [36].…”

Section: Explanations For the Occurrence Of Asset Price Bubblesmentioning

confidence: 99%

Comparison of Selected Market Indicators During the Dot-Com Bubble

Schubert¹,

Gavurová²,

Kováč³

et al. 2018

Financial Management From an Emerging Market Perspective

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Since the outbreak of the recent inancial crisis in 2007, central banks around the world have lowered interest rates while stock markets soared. On the example of North America, Europe, and Asia and in particular the United States, Germany, and China, the situation as of December 2015 is compared on the basis of economic theory and selected key performance indicators to the United States dot-com bubble in the nineties years of the twentieth century. Literature review ofers a complex general view on the issue of market bubbles with a historical review of the situation in 2007 and 2008. The only indication of a bubble can be found in the China Securities Index 300, more speciically in the technology sector. The further aim of the paper is related to analyse and compare returns of the explored indices among the regions and the sectors. On a broader level, the study inds that even though there are similarities, the current rise in indices does not qualify for an asset price bubble. Conclusion sums all the observed indings on both the levelsregional and national. Also, it ofers suggestions for discussion about the situation on the markets after the inancial crisis.

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“…There is a large literature on such indicators, many of which are developed from average prices or the magnitude of price changes in various periods. See, for example, [2] We do not make any claims about economic theory, but we will note that our system seeks to find rulesets that outperform buy and hold even at the cost of greater volatility. In particular, our rulesets allow short selling, which adds significantly to risk.…”

Section: Problem Domainmentioning

confidence: 99%