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Browsing by Author "Veijalainen, Viia"

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  • Veijalainen, Viia (2020)
    The aim of this study was to determine whether investment strategies based on technical analysis can achieve higher than average returns when investing in small-capitalization stocks. Earlier studies have demonstrated that the small-cap stock market behaves inefficiently, which supports the use of technical analysis in investment strategies. The performance of strategies was measured by their returns and risk-adjusted returns. The study included a statistical significance analysis of average daily returns between technical analysis methods and buy-and-hold strategy. The research data comprise the daily statistics of seven small-cap stocks traded on the Helsinki Stock Exchange and the OMX Nordic Small Cap index, and the data are from 2010 to 2019. Technical analysis based on investment strategy methods included moving averages, the RSI and the MACD. These were used to formulate 13 sets of trading rules with different parameters. Moving average methods used in the study were the simple moving average and dual moving average with varying lengths. The benchmark for technical trading strategies was the passive buy and hold investment strategy. Transaction costs, taxes and dividends were outside the scope of this study. According to the results, it is not possible to confirm that investment strategies based on technical analysis methods are able to achieve higher than average returns when investing in small-cap stocks. All methods except one failed to outperform the benchmark buy and hold strategy. Moving average methods, especially the dual moving average, were proven to be more effective than other technical trading methods. On the other hand, the analysis of average daily returns of buy and sell days revealed that they differ from each other and from the benchmark strategy in a statistically significant way. This indicates that technical analysis is able to extract additional information on the stock market, which supports the assumption of market inefficiency.