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Type Bachelor's Thesis
Scope Discipline-based scholarship
Title Can the market be beaten by technical analysis tools? An empirical study based on the S&P 500 over the last 15 years
Organization Unit
Authors
  • Tobias Meier
Supervisors
  • Patrick Eugster
  • Thorsten Hens
Language
  • English
Institution University of Zurich
Faculty Faculty of Business, Economics and Informatics
Number of Pages 42
Date 2020
Abstract Text This paper deals with the performance of technical analysis tools in equity markets. After a short introduction to the theory of the efficient market hypothesis and the current state of research on the performance of technical analysis tools, the most commonly used technical indicators are presented. These are the Exponential Moving Average (EMA), Simple Moving Average (SMA), Bollinger Bands©, Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD). In the first step, a trading strategy is developed for each indicator. Then different combinations of two indicators are implemented to get trading signals that have a higher accuracy rate. The parameters are optimized, a stop-loss or trailing-stop loss level is added to increase the performance of the strategies. The performance of these strategies is then compared with the one of the Buy and Hold strategy. Various statistics are used to measure the profit and the risk-return ratio. In a final step, these strategies are applied to five other financial markets. Namely, the Bovespa Index (Brazil), Shanghai Stock Exchange Composite Index (China), Bombay Stock Exchange Sensitivity Index (India), Nikkei Heikin Kabuka (Japan) and the Bitcoin. It turned out that the strategies developed performed well on the ETF TRUST S&P 500. With each of the implemented strategies except for the EMA and SMA strategy, it is possible to achieve a better risk-return ratio than with the Buy and Hold strategy. The absolute profit is also better with all strategies except for the EMA, SMA and MACD strategy. But no additional insight can be gained when applying these strategies to the other five financial markets. It is not possible to achieve an excess profit in all tested markets with one of the developed strategies. The only conclusion that could be reached is that strategies based on one indicator tend to perform better.
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