| Abstract [eng] |
AN INVESTIGATION INTO THE PROFITABILITY OF TECHNICAL ANALYSIS IN EQUITY MARKETS Patrick BURKE Master Thesis Finance and Banking Master Programme Faculty of Economics and Business Administration, Vilnius University SUMMARY 102 pages, 28 tables, 18 figures, 93 references The main purpose of this master thesis is to determine if technical analysis is profitable in equity markets and if so, investigate the reasons for its profitability. The Master thesis consists of three main parts, the analysis of previous research and literature, the development of a model to evaluate the profitability of technical analysis and its results, a conclusion and recommendations for further research. The literature analysis reviews the research conducted on the four main types of technical analysis, candlestick charting, chart patterns, technical indicators, and machine learning techniques. A consensus is found for each technique and most profitable technical indicators are extracted for examination in this paper. The research is further categorised by the market in which it was evaluated in to investigate the effects that different markets have on the profitability of technical analysis. Following the literature analysis, a model was developed from the information extracted from the reviewed studies. The model consisted of a moving average cross with a volume indicator in combination. Two variants of this model were used, one defensive and one aggressive. The model was deployed in two markets, one efficient, the US and one inefficient, Taiwan, two market capitalisation levels in each market, large and small, and during three periods, the bull period of 2020 to late 2021, the bear period of 2022 and a full period from early 2020 to late 2022. In total forty stocks were used to evaluate the two model variants. The results were extracted and matched against the buy and hold for the same period. Transaction costs were not included in the model but were considered upon analysis of the results. The results of the model were extracted manually and entered into excel for analysis and presentation. The performed research revealed that i) the defensive model cannot cut off more losses in the bear market than the profits gained by the aggressive model in the bull market, ii) the US small cap market had the highest profits for the model compared to the buy and hold, iii) the Taiwanese large cap and the US small cap were closest in performance indicating a similar efficiency level. iv) a trend was witnessed that as efficiency decreased the performance of technical analysis increased. The conclusion summarises the main concepts of the literature analysis as well as the results of the performed research. The author believes the results of the study could give useful guidance to investors and traders in determining if technical analysis is effective, which strategies are most beneficial, and which markets provide the most opportunity. |
