Trading rules and stock returns: some preliminary short run evidence from the Hang Seng 1985-1997

J. Andrew Coutts and Kwong-C. Cheung

Applied Financial Economics, 2000, vol. 10, issue 6, 579-586

Abstract: The paper investigates the applicability and validity of trading rules in the Hang Seng Index on the Hong Kong Stock Exchange for the period January 1985 to June 1997, and for two subsamples of equal length, partitioned from the whole sample. It is concluded that the Moving Average Oscillator and the Trading Range Break-out rules appear to be present, to varying extents, for all three data samples, although the Trading Range Break-out rule is by far the strongest. In terms of implementation, it is suggested that both the Moving Average Oscillator and Trading Break-out rules, would fail to provide positive abnormal returns, net of transaction costs and the associated opportunity costs of investing. Results are such that statistical significance can be shown when the rules are applied to data periods shorter than used in previous studies. Finally, it is suggested that because there is a tendency for potentially 'profitable' trading rules, once documented, to cease existing, further research concerning the Hang Seng Index and these two trading rules is required in years hence.

Date: 2000
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DOI: 10.1080/096031000437935

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