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A NOTE ON THE USE OF MOVING AVERAGE TRADING RULES TO TEST FOR WEAK FORM EFFICIENCY IN CAPITAL MARKETS

Alexandros E. Milionis
Bank of Greece and University of the Aegean

Evangelia Papanagiotou
University of the Aegean

ABSTRACT

This work focuses on the sensitivity of the performance of the moving average (MA) trading rule of technical analysis to changes in the MA length employed. Empirical analysis of daily data from NYSE, the Vienna Stock Exchange (VSE) and the Athens Stock Exchange (ASE) reveal high variability of the performance of the MA trading rule as a function of the MA length for all these markets, a result that weakens the conclusions of previous works, regarding the validity of the hypothesis of weak form market efficiency. Further, the trading rule is found to have predictive power in ASE and VSE, but not in NYSE.

Keywords: Efficiency of Capital Markets, Technical Analysis Trading Rules with Moving Averages, Athens Stock Exchange, New York Stock Exchange, Vienna Stock Exchange.

JEL classification: G14, G15, C22

Acknowledgements: The authors are grateful to H. Gibson and T. Anastasatos for helpful comments. The views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Greece.

Correspondence:

Alexandros E. Milionis
University of the Aegean,
Department of Statistics and Actuarial-Financial Mathematics
Karlovassi 83200, Samos, Greece
Tel.: +30-22730-82350, fax: +30-22730-82309
e-mail: amilionis@aegean.gr


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