Finding Profitability of Technical Trading Rules in Emerging Market Exchange Traded Funds

• Main Author: Hallett, Austin P.
• Format: Others
• Published: Scholarship @ Claremont 2012
• Subjects: Moving Averages; Investments; Technical Analysis; Emerging Markets; Exchange Traded Funds; Behavioral Economics; Corporate Finance; Finance; Finance and Financial Management; Portfolio and Security Analysis
• Online Access: http://scholarship.claremont.edu/cmc_theses/375; http://scholarship.claremont.edu/cgi/viewcontent.cgi?article=1381&context=cmc_theses

This thesis further investigates the effectiveness of 15 variable moving average strategies that mimic the trading rules used in the study by Brock, Lakonishok, and LeBaron (1992). Instead of applying these strategies to developed markets, unique characteristics of emerging markets offer opportunity to investors that warrant further research. Before transaction costs, all 15 variable moving average strategies outperform the naïve benchmark strategy of buying and holding different emerging market ETF's over the volatile period of 858 trading days. However, the variable moving averages perform poorly in the "bubble" market cycle. In fact, sell signals become more unprofitable than buy signals are profitable. Furthermore, variations of 4 of 5 variable moving average strategies demonstrate significant prospects of returning consistent abnormal returns after adjusting for transaction costs and risk.