The Effectiveness of Technical Trading for Arab Stocks

Abstract

In this paper, we examine the profitability of technical analysis for a cross section of individual Arab stocks. Our analysis, undertaken from the perspective of an Islamic investor, reveals that technical trading rules do not yield economically or statistically significant returns. While our results uncover some scant statistical evidence of technical trading rule profitability, risk adjusting the returns weakens the evidence in favor of predictability. Furthermore, break-even transaction costs do not exceed estimated transaction costs or bid-ask spreads in the markets examined.

Keywords:

• break-even transaction costs
• double moving average
• filter rule
• moving average convergence divergence
• relative strength index
• risk-adjusted returns
• technical analysis
• trade range breakout