Optimal and Non-Optimal MACD Parameter Values and Their Ranges for Stock-Index Futures: A Comparative Study of Nikkei, Dow Jones, and Nasdaq

Byung-Kook Kang ()
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Byung-Kook Kang: Department of Business Administration, Nanzan University, Nagoya 466-8673, Japan

JRFM, 2023, vol. 16, issue 12, 1-27

Abstract: This study investigates the optimal and non-optimal parameter values of the MACD (Moving Average Convergence Divergence) technical analysis indicator for three major stock market index futures: the Nikkei 225, the Dow Jones, and the Nasdaq. Using a recently developed methodology, it reveals the existence of specific ranges of optimal and non-optimal values for each of the three parameters of the MACD indicator in these indices. Sample models employing the optimal parameter values in the three index futures generated significantly higher returns, outperforming both a non-technical buy-and-hold strategy and a random strategy that did not incorporate any market information. This discovery suggests that the three market indices may not be weak-form efficient. Therefore, this study contributes to the research on market efficiency by verifying inefficiency using a new approach. The highlight of this study is identifying that the ranges of optimal parameter values for the three indices are different from each other, but the optimal parameter value combinations for each of the three indices share a unique characteristic form. This issue and its finding have not been explored in the existing literature. Several interesting findings and valuable insights for market participants and researchers arise from this study. The new methodology is unique in finding optimal and non-optimal parameter values through the analysis of parameter sets used in well-performing and poorly performing sample models. Its validity and reliability have been confirmed by this study, making a useful contribution to the field of technical analysis research, particularly in parameter optimization insight.

Keywords: MACD; technical analysis; stock index futures; market efficiency; stock trading simulation; COVID-19 (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2023
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