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Trading rules and excess returns: evidence from Turkey

Trading rules and excess returns: evidence from Turkey This paper aims to investigate popular technical trading rules (TTRs) applied to the FTSE Turkish all-cap and small-cap indexes from September 23, 2003 to August 9, 2019 to determine rules that produce net excess returns over the Buy-and-Hold strategy (B&H).Design/methodology/approachFive TTRs, namely, simple moving average, relative strength index, moving average convergence divergence, momentum, and rate of change, are applied, singly (one indicator) and in combination (two indicators) for multiple time periods.FindingsFor the small-cap index, some TTRs – including the famous Golden Cross, when the 50-day moving average rises above 200-day moving average – produced net annual excess returns (NAERs) over the B&H strategy, for the entire period and each sub-period, after accounting for risk and transaction costs. Results were mixed for the large-cap index. The results support Cakici and Topyan (2013).Research limitations/implicationsThis study investigates several indicators, but future studies should examine others, especially based on volume and price.Practical implicationsInvestors in the FTSE Turkish small-cap index may use some trading rules to earn NAERs over the B&H strategy.Originality/valueThis research is important because it addresses a gap in the research by examining numerous TTRs in the Turkish stock market. Studies of TTRs in Turkey are scarce. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Islamic and Middle Eastern Finance and Management Emerald Publishing

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References (108)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1753-8394
DOI
10.1108/imefm-01-2020-0043
Publisher site
See Article on Publisher Site

Abstract

This paper aims to investigate popular technical trading rules (TTRs) applied to the FTSE Turkish all-cap and small-cap indexes from September 23, 2003 to August 9, 2019 to determine rules that produce net excess returns over the Buy-and-Hold strategy (B&H).Design/methodology/approachFive TTRs, namely, simple moving average, relative strength index, moving average convergence divergence, momentum, and rate of change, are applied, singly (one indicator) and in combination (two indicators) for multiple time periods.FindingsFor the small-cap index, some TTRs – including the famous Golden Cross, when the 50-day moving average rises above 200-day moving average – produced net annual excess returns (NAERs) over the B&H strategy, for the entire period and each sub-period, after accounting for risk and transaction costs. Results were mixed for the large-cap index. The results support Cakici and Topyan (2013).Research limitations/implicationsThis study investigates several indicators, but future studies should examine others, especially based on volume and price.Practical implicationsInvestors in the FTSE Turkish small-cap index may use some trading rules to earn NAERs over the B&H strategy.Originality/valueThis research is important because it addresses a gap in the research by examining numerous TTRs in the Turkish stock market. Studies of TTRs in Turkey are scarce.

Journal

International Journal of Islamic and Middle Eastern Finance and ManagementEmerald Publishing

Published: Jul 27, 2021

Keywords: Transaction costs; Financial markets; Efficient market hypothesis; Trading rules; Turkish stock market; Buy-and-Hold (B-H)

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