The profitability of moving average trading rules in BRICS and emerging stock markets

Abstract

Technical analysis and trading systems have been widely used by practitioners in financial markets. Since some academic studies have highlighted that these tools can generate positive alphas when compared with a buy-and-hold strategy, we studied the main stocks of the BRICS and emerging markets. We considered the period from 2000 to 2015 and observed different combinations of moving average strategies and periods. The main results indicate that, for some countries, there is a combination of periods for moving averages producing better outcomes.

Examination of the profitability of technical analysis based on moving average strategies in BRICS

“…Returns obtained were compared with and without the inclusion of costs. Neither of these aspects were considered in Sobreiro et al (2016), whose simulations were made with the initial application of 10,000.00 local currency units and without considering transaction costs. Similarly, costs were not considered in Chong et al (2010).…”

“…In this work, we sought to complement the approach of Costa et al 2015and Sobreiro et al (2016) in some respects. First, we studied the performance of technical analysis for the instruments traded in Brazil as verified in Costa et al (2015), and also for the BRICS members, to check the profitability of indicators for a more general class of countries.…”

“…In this context, we investigated all BRICS countries, instead of only the BRIC nations, using data through 2016. It is important to highlight that both Sobreiro et al (2016) and Chong et al (2010) did not analyze the results of trading strategies that took into account transaction costs. Therefore, our automated trading system, by operating with and without brokerage fees, allowed us to assess the impact of transaction costs on the overall profitability of the strategies.…”

“…It is worth mentioning that the approach of Sobreiro et al (2016) does not explore the impact of transaction cost on a portfolio's return, which has a significant cooling effect on the performance of the trades, and is subject to currency rate volatility. With regard to this last aspect, it is worth noting that the authors' use of 10,000.00 local currency units as the initial value of the portfolio left the investments open to the effects of exchange rate fluctuations and inflation that often impact the currencies of emerging countries.…”

A Credibilistic Mean-Semivariance-Per Portfolio Selection Model for Latin America

“…Stock exchange investors have a variety of strategies available to allocate their wealth. Shortterm investors mainly employ technical analysis (Sobreiro et al, 2016;Zhu, Atri, & Yegen, 2016) and chartist analysis (Gerritsen, 2016;Schmitt & Westerhoff, 2017). Long-term inves-tors widely use fundamental analysis (De Oliveira, Nobre, & Zárate, 2013;Shen, Yan, & Tzeng, 2014) or passive investment strategies (García, Guijarro, & Moya, 2013;García, Guijarro, & Oliver, 2018).…”