Authors: Dedhy Sulistiawan; Felizia Arni Rudiawarni
Addresses: Faculty of Business and Economics, EB Building 2nd floor, Jl. Raya Kalirungkut, Surabaya 60293, Indonesia ' Faculty of Business and Economics, EB Building 2nd floor, Jl. Raya Kalirungkut, Surabaya 60293, Indonesia
Abstract: The development of behavioural finance stimulates the usefulness of simple trading rule. Decision biases are reflected in price movement, which is utilised by technical analysis indicators to generate trading rules. The main objective of this research is to evaluate the performance of the moving average (MA) trading rules, as a popular indicator in stock markets. The sensitivity of MA length is also examined to generate optimal return. We employ daily data of Indonesia composite index from the beginning of 1998 to the end of 2016 to examine the profitability of MA trading rule. The findings show that investors can apply MA trading rules in Indonesia stock market. Our supplementary analysis indicates that shorter (longer) MA produce higher (lower) return. The return of MA trading rules is also affected by trend. This paper contributes to trading strategy studies, particularly for stock exchanges in emerging markets. Our results recommend that selection of MA length in trading rules is important to create optimal return.
Keywords: technical analysis; trading strategy; moving average; weak-form efficiency; behaviour; trading rule; return; emerging markets; investors; Indonesia.
International Journal of Business and Globalisation, 2020 Vol.24 No.1, pp.139 - 150
Received: 15 Aug 2017
Accepted: 23 Dec 2017
Published online: 03 Feb 2020 *