Return Predictability and Market Efficiency: Evidence from the Bulgarian Stock Market

Abstract

We applied three well-known technical indicators and one neglected indicator to the daily data for the Bulgarian Stock Index from November 21, 2003 to March 1, 2018. The results strongly support the predictive power of technical trading rules for the entire period and for each subperiod. This study includes a comprehensive evaluation that shows that it is possible to exploit this predictive power to beat the buy-and-hold strategy with respect to both risk and transaction costs. We identify four strategies, from lowest risk to highest risk, and find that trading by the 200 days moving average beat the profitability of the buy-and-hold strategy with respect to risk and one-way transaction cost by 1.76% for the entire period and each subperiod for Bulgaria.

Keywords:

• market efficiency
• return predictability
• stock market trading strategies
• technical analysis
• technical trading rules
• trading indicators

Additional information

Notes on contributors

Massoud Metghalchi

Dr. Massoud Metghalchi received his undergraduate degree in France and his MBA degree from Oklahoma City University.  Dr. Metghalchi earned a PhD from Oklahoma State University. He is an endowed professor of finance at the University of Houston – Victoria School of Business Administration. Dr. Metghalchi has focused his research primarily on the world’s equity markets. He has published more than 40 journal articles in journals such as International Review of Financial Analysis, Applied Financial Economics, and Applied Economics. Dr. Metghalchi has received both university and school of business research awards.

Massomeh Hajilee

Dr. Massomeh Hajilee is an associate professor of Economics at the University of Houston – Victoria School of Business Administration. . She earned her PhD in Economics from the University of Wisconsin at Milwaukee and her Master's in International Affairs with a concentration in Economic Policy Management from Columbia University. She completed her undergraduate degree in Economics at the Tehran University. Her research focuses on topics in applied macroeconomics, international economics, and economic development and growth. Dr. Hajilee has received specialized training in several areas of macroeconomics and public finance from the International Monetary Fund, and the World Bank and Bank of England. She has published articles in several academic journals including Quarterly Review of Economics and Finance, Applied Economics, Global Business and Economic Review, and the Journal of Post Keynesian Economics.

Linda A. Hayes

Dr. Linda A. Hayes is a Professor at the University of Houston - Victoria School of Business Administration.  She received a BS in Mechanical Engineering at Clarkson University, an MBA at University of Houston, and a PhD from the University of California at Berkeley.  Dr. Hayes has 15 years of industry experience in the area of international management, where she gained expertise in project management, implementation and control.  Dr. Hayes teaches at both the undergraduate and graduate level. Her research interests include business strategy and decision making. She has published in the International Review of Financial Analysis, Journal of Business Ethics, and Journal of International Marketing.