Testing the Effect of Technical Analysis Strategies on Achieving Abnormal Return: Evidence from Egyptian Stock Market

Abstract

This study examined the effect of using inter and exit signals of three of the most common used technical analysis strategies on achieving abnormal return compared with the buy and hold strategy in the Egyptian security market. The tests were done using data for short term, relatively long term, during bull and bear market. Using bootstrap methodology and wilcoxon/mann-whitney test for daily closing prices during the period from 1-1-1998 to 14-1-2016, the results indicated that; First, market timing with technical analysis yields more return and reduces risk in general. Second, short term investing is not recommended at all, as it is less profitable even than bear market period. Third, in long term and during bull market technical analysis is more profitable than short term. Fourth, technical analysis importance have been reduced during the last few years due to the effect of the Egyptian revolution on the security market. As for investors, they should use technical analysis trading rules to determine when to enter and exit the market, so that they can improve their investment decisions, as it leads to achieve abnormal return and reduces risk more than buy and hold strategy in all cases, while pay more attention for the current and political events than before.

Microstructure and asset pricing: An insight on African frontier stock markets

“…Indeed, increasing the NTD leads to an increase of return. This result is similar to that of El‐Ansary and Atuea (2012) who find a positive contemporary relationship with return. The important point from panel B is that the NT and SC now have a significant impact on returns.…”

“…According to Chordia et al (2001) and Kumar and Singh (2009), the transaction's value should negatively influence return. Moreover, the transaction's frequency has a positive and significant contribution to asset pricing (Baron et al, 2012;El-Ansary & Atuea, 2012;Hauser et al, 2001;Xue & Gencay, 2008). Indeed, according to Chikoré et al (2014), this relationship should also be positive with the NTD.…”

Empirical Investigation of Abnormal Returns through Technical Analysis in the Nepalese Stock Market

“…Upon conducting rigorous statistical analyses, the research results failed to establish statistically significant evidence supporting the superiority of technical trading rules over the buy and hold strategy within these markets. Ansary et al (2017) made significant observations in the context of emerging market data, emphasizing that technical analysis strategies outperformed the buy and hold strategy across various time horizons, encompassing the short term, long term, bull markets, bear markets, and periods both before and after the Egyptian revolution. Similarly, Kay (2019) corroborated the notion of market efficiency, asserting that trend-following strategies typically underperformed the traditional buy and hold strategy in a majority of scenarios.…”

Testing the Predicting Ability of Technical Analysis Classical Patterns in the Egyptian Stock Market

“…Fang et al (2014); Fama and Blume (1966) and Jensen and Bennington (1970);Fama (1965Fama ( , 1970 However, a growing body of literature has been recognized recently that technical analysis could generate abnormal returns. For example (Zapranis & Tsinaslanidis 2012;Cervello-Royo;Guijarro & Michniuk 2015) for classical price patterns, (Marshall & Cahan 2005;Gustafsson 2012;Ülkü & Prodan 2013;Boboc & Dinică 2013;Baetje & Menkhoff 2016;Chen;Su & Lin 2016;El-Ansary & Atuea 2017) for technical indicators and (Brock;Lakonishok & LeBaron 1992;Bessembinder & Chan 1995) for both technical patterns and indicators. There was a common conclusion that returns achieved using technical rules significantly exceeded the returns generated through buy and hold strategy and that technical rules can help in predicting future returns.…”