DOES TECHNICAL ANALYSIS GENERATE SUPERIOR PROFITS? A STUDY OF KSE-100 INDEX USING SIMPLE MOVING AVERAGES (SMA)

Abstract

The study evaluates the performance of technical analysis to know whether it can
generate abnormal profits and outperform the stock market the research is based on
secondary data of 30 companies that are listed on the Karachi stock exchange KSE 100
index from the 2006-2014 simple moving averages is used as a tool for identifying the
trend direction as well as generating buy and sell signals. Two sample t –test is used to
find to find significant differences between returns generated by moving average (TTR)
and the buy & hold strategy. Based on the analysis the findings shows that returns from
technical analysis cannot outperform the returns from buy and hold strategy in KSE. It
can be concluded from results that B&H strategy generates higher returns to investors
as compared to TTR; one of the reason that can be attributed here is high transaction
cost that is added to frequent buying and selling under the technical analysis.