Informed Trading and Technical Analysis

Project Details

Description

Although technical analysis has been widely applied by investors in a variety of asset classes, its effectiveness is in dispute in academic literature, of which the reason is likely to be that it is effective in some scenarios but not in the others. Therefore, this project would like to investigate how informed trading affects the effectiveness of technical analysis. The theoretical literatures of rational expectation and behavioral finance have both suggested that informed trading affects the effectiveness of technical analysis, but they differ in predicting the direction of the effect. This project would like to follow Han, Yang, and Zhou's (2013) methodology to investigate this question. Namely, this project would like to use the U.S. stocks as samples, form portfolios according to the probability of informed trading in the previous year, trade these portfolios by moving average indicators in the next year, and to compute the differences in the abnormal returns of these portfolios. The research outcomes of this project are expected to help investors selecting assets and developing effective trading strategies.
StatusFinished
Effective start/end date1/08/1831/07/19

UN Sustainable Development Goals

In 2015, UN member states agreed to 17 global Sustainable Development Goals (SDGs) to end poverty, protect the planet and ensure prosperity for all. This project contributes towards the following SDG(s):

  • SDG 13 - Climate Action
  • SDG 17 - Partnerships for the Goals

Keywords

  • Informed trading
  • Probability of informed trading
  • technical analysis
  • asset pricing.

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