Can technical indicators predict the Chinese equity risk premium?

Mingwei Sun and Paskalis Glabadanidis

International Review of Finance, 2022, vol. 22, issue 1, 114-142

Abstract: We find that technical indicators have substantial predictive power over the Chinese equity risk premium. Technical indicators complement macroeconomic variables in predicting the Chinese equity risk premium. The predictive power is more pronounced at a weekly frequency rather than a monthly frequency as suggested by the out‐of‐sample tests. Furthermore, weekly‐level technical indicators can predict the firm‐level excess returns while monthly‐level indicators cannot. The weekly‐level indicators can also predict sorted portfolio excess return and risk factors. Overall, in comparison with the US stock market, the Chinese stock market seems to have higher‐frequency price trends. The cross‐sectional predictive power of the technical indicators is closely related to market capitalization rather than volatility.

Date: 2022
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